GROUP LONG DISTANCE INC, 10KSB, 1998-08-13

GROUP LONG DISTANCE INC
10KSB, 1998-08-13
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]

For the fiscal year ended April 30, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].

For the transition period from __________ to __________

Commission file number 0-21913

GROUP LONG DISTANCE, INC.
(Name of Small Business Issuer 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, Suite 200,
Fort Lauderdale, FL 33309
(Address of Principal Executive Offices)

(954) 771-9696
(Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class Name of Each Exchange
- ------------------- on Which Registered
Common Stock, no par value ---------------------
Boston Stock Exchange and
Nasdaq SmallCap Market
Redeemable Warrants Boston Stock Exchange and
Nasdaq SmallCap Market

Securities registered pursuant to Section 12(g) of the Act: None

Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

Revenues for the fiscal year ended April 30, 1998 were $54,340,938.

The aggregate market value of voting stock held by non-affiliates as of August
7, 1998 was $7,114,152.

The number of shares of Common Stock, no par value, outstanding as of August 7,
1998 was 3,502,783.

The number of Redeemable Warrants outstanding as of August 7, 1998 was
1,437,500.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders, which will be filed on or before August 28, 1998, are incorporated
by reference into Part III of this Report.

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TABLE OF CONTENTS

Page
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<TABLE>
<S> <C> <C>

Item 1. Description of Business........................................... 1
The Company....................................................... 1
Marketing and Sales............................................... 2
Services and Products............................................. 2
Acquisitions...................................................... 3
Recent Developments .............................................. 4
Industry Background and Government Regulation..................... 4
Competition....................................................... 7
Employees......................................................... 7

Item 2. Description of Property........................................... 7

Item 3. Legal Proceedings................................................. 8

Item 4. Submission of Matters to a Vote of Securities Holders............. 9

Item 5. Market for Common Equity and Related Stockholder Matters.......... 10

Item 6. Management's Discussion and Analysis or Plan of Operation......... 11
Overview.......................................................... 11
Acquisitions...................................................... 13
Results of Operations............................................. 14
Liquidity and Capital Resources................................... 15
Effects of Inflation.............................................. 17
Legal Proceedings................................................. 17
Accounting Pronouncements ........................................ 18
Subsequent Events................................................. 19
Factors That Could Affect Operating Results....................... 19

Item 7. Financial Statements.............................................. 21

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 21

Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................. 22

Item 10. Executive Compensation................................................. 22

Item 11. Security Ownership of Certain Beneficial Owners and Management......... 22

Item 12. Certain Relationships and Related Transactions......................... 22

Item 13. Exhibits, List and Reports on Form 8-K................................. 22

Signature Page.................................................................. 26

Reports of Independent Public Accountants....................................... F-1

Financial Statements............................................................ F-2

</TABLE>

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This Annual Report on Form 10-KSB contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission ("SEC") filings
and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements due to risks and factors identified
from time to time in the Company's filings with the SEC including those
discussed in this Report.

PART I

Item 1. Description of Business

The Company

Group Long Distance, Inc. (the "Company") is a non-facilities-based
reseller of long distance telecommunications services to small and medium-sized
commercial customers and residential subscribers. The Company utilizes special
network service contracts through major national long-distance
telecommunications carriers to provide its customers with products and services
which include basic "1 plus" and "800" long distance services. The Company was
incorporated under the laws of Florida in September 1995 by ITC Integrated
System, Inc. ("ITC"), an unaffiliated third party, under the name Second ITC
Corporation ("Second ITC") as the successor to the business of Group Long
Distance, Inc. ("GLD"), which was incorporated under the laws of Florida in July
1990. In November 1995, GLD was merged into Second ITC and Second ITC
simultaneously changed its name to Group Long Distance, Inc. Unless otherwise
indicated, all references to the Company include GLD, the Company's predecessor,
and the Company's wholly owned subsidiaries.

For the fiscal years ended April 30, 1998, 1997 and 1996, the Company's
revenues were $54.3 million, $23.4 million and $12.4 million, respectively. The
majority of the Company's revenues are derived from calls routed through
Tel-Save, Inc. ("Tel-Save"), a nationwide provider of telecommunications
services Such revenues represented 96%, 74% and 61% of total revenues for the
fiscal years ended April 30, 1998, 1997 and 1996, respectively.

As a non-facilities based reseller of long distance telecommunications
services, the Company utilizes service contracts to provide its customers with
switched, dedicated and private line services to long distance
telecommunications networks. The Company does not own or operate any primary
transmission facilities. All of the Company's products and services are
currently provided for by long distance carriers and regional and local
telephone companies. The Company has entered into agreements with Tel-Save to
purchase a minimum volume of long distance telephone service at discounted bulk
rates. The Company then resells these discounted bulk rates to customers, since
these rates are lower than rates the Company's customers are able to obtain for
themselves due to small call volume. The Company then provisions the customer
onto the carriers' networks, which provide the actual transmission service. The
Company does not own or lease any telephone equipment at the customer's
premises, nor does it provide telephone cabling or installation services. The
customer still maintains its own existing telephone numbers, and all changes in
service are done by the local or interexchange carriers. The customers incur no
expense in making the decision to switch to the service of the Company. During
the first quarter of its 1998 fiscal year, the Company discontinued its
international call back business and outsourced its Internet business to a local
service provider. In February 1998, the Company terminated its agreement with
WorldCom, Inc. ("WorldCom") and sold its customer base of existing customers
using the WorldCom service to another reseller of WorldCom Services and used the

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proceeds from this sale against the amount it agreed to pay in settlement of all
claims between the Company and WorldCom.

To obtain favorable rates from its carriers, the Company has committed
to purchase certain minimum volumes of long distance services during stated
periods, whether or not such volumes are used. For the fiscal years ended April
30, 1998 and April 30, 1997 such commitments aggregated approximately
$36,000,000 and $8,600,000, respectively. Failure to satisfy volume purchase
commitments or price increases by carriers could materially adversely affect the
Company's future operating results. The Company periodically renegotiates its
volume commitments with its carriers.

The Company's customers historically have been located principally in
the Southeastern United States. As a result of its marketing efforts and
acquisitions, however, the Company has been able to expand its geographical
market to include all of the United States, except Alaska. The Company targets
customers whose telecommunications usage needs generally do not qualify for
major carriers' volume discounts or for the level of support services made
available to higher volume users.

Marketing and Sales

The Company markets its services and products through two distinct
channels of distribution: independent telemarketing and independent agents.
Historically, the Company has also utilized field service personnel, independent
agents and distributors in its marketing efforts, and has sold certain of its
telecommunications services on a wholesale basis to smaller resellers.

As a result of the economic efficiencies afforded by using independent
telemarketers, the Company has significantly increased its use of telemarketers
during the fiscal 1998 year. In June 1997, the Company began a telemarketing
campaign to promote its long distance service to small and medium sized
businesses throughout the United States. This telemarketing campaign resulted in
approximately 360,000 new orders and revenues of approximately $37.8 million for
the current 1998 fiscal year. The telemarketing campaign was curtailed at the
end of October 1997.

The Company intends to actively pursue a strategy of continued growth
and will seek to expand the distribution of its services and products and
maximize penetration of new and existing geographic markets. The Company intends
to expand its marketing activities by continuing the use of independent
telemarketers as well as utilizing independent agents and affinity type
programs. The Company will also continue to (i) develop strategic marketing
relationships, (ii) regularly evaluate possible acquisition opportunities, and
(iii) improve operating and network efficiencies. The Company's ability to
achieve these objectives will be affected by, and to a certain extent dependent
on, many factors that are beyond the control of the Company. Thus, no assurance
can be given that such objectives can be or will be achieved.

Services and Products

The Company's principal services which have historically accounted for
all of the Company's revenues, are its basic "1 plus" and "800" long distance
services.

The Company has already commenced the process of applying to various
state regulatory authorities for permission to offer local or intrastate
telecommunication services. This certification process requires that the Company
file applications with such state regulatory bodies and file and maintain a
tariff detailing rates for intrastate telecommunication services. This includes
compliance with state emergency and civil regulations governing the provision of
services for local telecommunication services. The Company has to date been
approved to resell local exchange telecommunications services to both
residential and business customers in 39 states. Local services will be an

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adjunct to the intrastate interexchange services that the company currently
provides in forty-nine states.

The Company has historically experienced delays in provisioning
(activating new customers) by its carriers. In an effort to improve provisioning
efficiencies, beginning in the fourth quarter of its 1997 fiscal year, new
customers of domestic switched, basic "1 plus" and "800" services have been
provisioned through Tel-Save's own nationwide telecommunications network, One
Better Net ("Tel-Save's OBN"). This network enables the Company to provide the
quality of AT&T (now Lucent Technologies, Inc.) switches and AT&T-provided
transmission facilities and billing services.

In a further effort to improve efficiencies, the Company commenced "LEC
billing" arrangements with the Regional Bell Operating Companies and local
exchange carriers ("LEC") during the second quarter of fiscal year 1998. These
LEC billing arrangements are expected to improve billing efficiencies and
increase collections and customer retention, however, there can be no assurance
that such efficiencies will improve or collections and customer retention will
increase.

Acquisitions

The Company operates in a highly fragmented segment of the
telecommunications industry and has historically expanded its operations through
the acquisition of customer bases. The Company has regularly evaluated possible
acquisition opportunities and may seek to acquire smaller resellers and customer
bases in order to expand the distribution of its services and products and its
geographic markets in the future. Except as otherwise disclosed herein, the
Company has no plans, agreements, commitments, understandings or arrangements
with respect to any acquisition. There can be no assurance that the Company will
ultimately effect any acquisition, that the Company will not experience
increased customer attrition as a result of any acquisition, that the Company be
able to successfully integrate into its operations any business or customer base
which it may acquire, or that the Company will be able to service any debt or
other obligations incurred in connection with any acquisition. For the
three-year period ended April 30, 1998, the Company made the following
acquisitions:

In August 1997, the Company acquired Eastern Telecommunications
Incorporated ("ETI"). The $8.313 million purchase price for ETI consisted of two
$3.5 million notes, warrants to purchase 1,347,000 shares of Tel-Save common
stock, at $4.08 per share (the "Warrants"), the assumption of approximately $1.2
million of certain of ETI's liabilities and the payment of closing costs in the
amount of $113,000. On August 11, 1997, the Company exercised one of the
Warrants and purchased 600,000 shares of common stock of Tel-Save at the
aggregate exercise price of $2,448,000. In October 1997, the Company exercised
the remaining Warrant and sold the common stock for approximately $26.6 million
with a gain on sale of approximately $13.4 million.

Proceeds from the sale of the Tel-Save shares were used to retire the
aggregate principal amount of $7,000,000 in notes (plus accrued interest) due in
connection with the ETI acquisition, together with certain related closing
costs. The balance of the proceeds from the sale of the Tel-Save shares was used
to pay down debt and accounts payable owed to Tel-Save, including payment of the
balance of the loan outstanding to Tel-Save in connection with the July 1996
acquisition of all of the common stock of Aventures-in-Telecom ("AIT") and
marketing expenses incurred in connection with the Company's telemarketing
efforts during the first half of fiscal year 1998

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In January 1997, the Company purchased from Great Lakes
Telecommunications Corp. ("Great Lakes") (i) a customer base consisting of
approximately 7,000 customers that were subject to an agreement between Great
Lakes and Tel-Save and (ii) a warrant to purchase 200,000 shares of common stock
of Tel-Save in consideration of $1,200,000 in cash. In connection with the
acquisition, the Company borrowed $1,200,000 from Tel-Save. In January 1997,
Tel-Save repurchased the warrants from the Company in consideration of
$1,800,000 and credited the Company with such amount ($1,200,000 to repay the
loan made in January 1997 and $600,000 to reduce the outstanding principal
balance under the Acquisition Loan, described below).

In July 1996, the Company acquired all of the issued and outstanding
capital stock of AIT, a non-facilities based reseller of long distance
communications services. The purchase price was comprised of $5,271,230 in cash
and 200,000 restricted shares of Common Stock of the Company. The acquired
company consisted of a customer base of 30,000 small businesses. In December
1996, the Company agreed with the former shareholders of AIT to cancel 45,000 of
the 50,000 shares that were subject to certain holdback provisions, in
settlement of certain claims by the Company against the AIT shareholders. In
July 1996, in connection with the AIT acquisition, the Company entered into an
agreement with Tel-Save pursuant to which it borrowed an aggregate of $5,521,230
primarily to finance the purchase price of the acquisition (the "Acquisition
Loan"). As amended, the loan agreement provides for the repayment of the
Acquisition Loan in monthly payments of $125,000 plus interest beginning after
September 1997. To induce Tel-Save to provide the financing for the purchase of
AIT, the Company issued a warrant to purchase 300,000 shares of Common Stock of
the Company at $5.75 per share and a warrant to purchase 50,000 shares of Common
Stock of the Company at $5.00 per share. In June 1997, these warrants were
returned to the Company from Tel-Save for no consideration.

In May 1996, the Company acquired all of the issued and outstanding
capital stock of Gulf Communications Services, Inc. ("Gulf") in consideration of
$25,000 in cash and the assumption of a promissory note in the principal amount
of $182,000. The note was payable in equal monthly installments of $10,000 and
was repaid in full in May 1998. The acquired company operated switching
equipment, which allowed it to act as an international call back and call
through provider, and offered prepaid calling cards. Its customer base included
approximately 200 commercial customers.

Recent Developments

In July 1998, the Company engaged Gerard Klauer Mattison & Co., Inc. to
act as its financial advisor in exploring its strategic options including the
potential sale of the Company. In the event management decides to pursue a sale
of the Company, the Company cannot at this time assess the likelihood that a
sale of the Company will occur or predict what the terms of such sale, if any,
might be.

Industry Background and Government Regulation

The Company's telecommunications services are subject to government
regulation. Federal law regulates domestic interstate and international
telecommunications, and state law regulates telecommunications that originate
and terminate within the same state.

The telecommunications industry's structure has until recently been
formed by a 1982 court decree (the "Consent Decree") between AT&T and the United
States Department of Justice which required the divestiture by AT&T of its Bell
operating companies and divided the country into 201 Local Areas and Transport
Areas ("LATAs"). The 22 Bell operating companies, which were combined into seven
Regional Bell Operating Companies ("RBOCs"), were allowed to provide local
telephone service, local access service to long distance carriers and service
within LATAs ("intraLATA service"). However, the right to provide service
between LATAs ("InterLATA service") was restricted to AT&T and other long
distance carriers.

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To encourage competition in the long distance market, the Consent
Decree and certain FCC regulations require most RBOCs and other local exchange
carriers ("LECs") to provide access to local exchange services that is "equal in
type, quality and price" to that provided to AT&T and with the opportunity to be
selected by customers as their preferred long distance carrier. These "equal
access" provisions are intended to prevent preferential treatment of AT&T by
LECs and, with other regulatory, judicial and technological factors, have helped
smaller companies to become competitive alternatives to AT&T, MCI
Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint") for
long distance services. A May 1996 FCC report stated that as of December 31,
1994 there were 465 long distance carriers purchasing equal access services from
LECs in the United States. Included in these carriers are the "first tier" of
AT&T, MCI and Sprint, a "second tier" of somewhat smaller carriers, such as
Worldcom, Excel Communications, Inc., Cable & Wireless Communications and LCI
International, and a "third tier" of the remaining companies.

The long distance industry has been significantly altered by two
regulatory enactments. First, in October 1995, the FCC terminated AT&T's
previous price cap regulations regarding service to residences and small
businesses and now allows AT&T to file effective rate schedules on one day's
notice, thereby limiting competitors' previous ability to protest such tariffs.
These changes give AT&T increased flexibility that may permit it to compete more
effectively with smaller long distance service providers, such as the Company,
particularly in regard to the small business customers which compose the vast
majority of the Company's customer base. Second, on February 8, 1996, the
President signed the Telecommunications Act of 1996, designed to introduce more
competition into U.S. telecommunications markets. This Act increases the
potential for competition in both the long distance services market, by removing
the prohibitions against RBOCs providing long distance services, and in the
local services market by requiring LECs to permit interconnection to their
networks, thus allowing long distance and regional carriers to compete in local
markets. Due to these changes, the Company may be forced to compete with both
RBOCs and long distance carriers to a greater degree than in the past.

In the wake of widespread adverse publicity, federal and state
regulatory authorities have introduced more stringent rules governing changes in
long distance telecommunication service providers. These new rules are a result
of increased consumer complaints throughout the industry regarding "slamming"
(the unauthorized switching of a customer's preselected telecommunication
provider) and "cramming" (the unauthorized billing of additional
telecommunication services not requested by the customer). In addition, both the
Senate and Congress are currently considering legislation that would
significantly increase the penalties and fines that are levied against telephone
service providers for "slamming" and "cramming". Such rules may inhibit the
ability of the Company to grow its business. The Company may be required to
submit to more vigorous screening of customers before switching their long
distance service, which may make customers less likely to change carriers.

The telephone service providers themselves are taking action against
those resellers of their services whom knowingly and intentionally perpetrate
these illegal actions. Several states are requiring that each carrier assign to
an individual reseller its own Carrier Identification Code ("CIC") thereby
making the reseller rather than the long distance carrier responsible for any
illegal changes in service provider. Most local exchange carriers, through which
any changes in service must be initiated, have actively pushed a preferred
presubscribed interexchange carrier ("PIC") freeze on all changes of a long
distance carrier. This PIC freeze would now require the consumer to directly
contact and authorize the local exchange carrier to change its distance carrier
before any switch in carrier is made.

Any changes in the regulations may have detrimental effect on the
Company's ability to attract new customers, since these new PIC freeze
regulations have the effect of locking customers into their existing long
distance service provider.

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Federal Regulation.

International non-dominant carriers must maintain tariffs on file with
the FCC. The tariffs of non-dominant carriers, such as the Company, are presumed
lawful and are seldom contested, although those tariffs and the rates and
charges they specify are subject to FCC review.

In October 1996, the FCC adopted an order that required nondominant,
interstate, interexchange carriers, such as the Company, to withdraw their
tariffs, insofar as such tariffs apply to interstate services (the "Detariffing
Order"). Recently, the United States Court of Appeals for the District of
Columbia Circuit granted motions for stay of the Detariffing Order, pending
judicial review. According to an FCC Public Notice, the result of this stay is
that the tariffing rules in place prior to the effectiveness of the Detariffing
Order are in effect, and nondominant carriers providing interstate, domestic
interexchange services continue to be required to file tariffs pursuant to the
FCC's Rules.

Among domestic local carriers, only the current LECs are presently
classified by the FCC as dominant carriers for the provision of interstate
access services. This means that the FCC regulates many of the LECs' rates,
charges and services to a larger degree than the Company's. The FCC's regulation
of LECs is expected to decrease over time, especially given the 1996
Telecommunications Act. The FCC has proposed that RBOCs that provide
out-of-region long distance services be regulated as non-dominant carriers.

RBOC entry into the long distance market may mean that the Company will
be faced with new competition from well-entrenched, well-capitalized and
marketable companies, that consumers have had prior dealings with for local
access service. This may allow these RBOCs due to their name recognition and
established service practices to have a significant advantage in their ability
to attract long distance customers and to offer long distance service as an
adjunct to local service access.

However, the entry of a RBOC into the long distance telecommunication
market is dependent on the RBOC fully opening its local exchange market to
outside competitors and primarily the long distance carriers. To date no RBOC
has been successful in its bid to offer long distance service as long as they
fail to satisfactorily open their local exchange market. This situation may
change in the near future and the Company will be faced with further competition
for customers.

State Regulation. The intrastate long distance operations of the
Company are also subject to various state law and regulations, including prior
certification, notification and registration requirements. The vast majority of
states require the Company to apply for certification to provide intrastate
telecommunications services, or at least to register or be found exempt from
regulation, before commencing intrastate services. Most states also require the
Company to file and maintain detailed tariffs listing their rates for intrastate
service. Many states also impose various reporting requirements and/or require
prior approval for transfers of control of certified carriers, assignment of
carrier assets, including customer bases, carrier stock offerings and incurrence
by carriers of significant debt obligations. Certificates of authority can
generally be conditioned, modified, cancelled, terminated or revoked by state
regulatory authorities for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Fines and other
penalties may also be imposed for such violations.

The Company provides interstate and international long distance service
in all or some portions of 50 states for which the Company has filed a tariff
with the FCC. The Company is authorized, pursuant to state regulations,
certifications, tariffs or notifications or on an unregulated basis, to provide
intrastate service to all of the United States, except Alaska.

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Competition

The Company faces intense competition in the marketing and sale of its
services and products. The Company's long distance, and other services and
products have achieved significant national and regional consumer loyalty. Many
of these services and products are marketed by companies which are
well-established, have reputations for success in the development and sale of
services and products and have significantly greater financial, marketing,
distribution, personnel and other resources than the Company. These resources
permit such companies to implement extensive advertising and promotional
campaigns, both generally and in response to efforts by additional competitors
to enter into new markets and introduce new services and products. Certain of
these competitors, including AT&T, MCI and Sprint, dominate the industry and
have the financial resources to enable them to withstand substantial price
competition which has continued to increase. These and other large telephone
companies have also entered or have announced their intention to enter into the
prepaid phone card and Internet segments of the telecommunications industry.
Because the reseller segment of the telecommunications industry has no
substantial barriers to entry, competition from smaller resellers in the
Company's target markets is also expected to continue to increase significantly.
The markets for telecommunications services and products are also characterized
by rapidly changing technology and evolving industry standards, often resulting
in product obsolescence or short product life cycles. The proliferation of new
telecommunications technologies, including personal communication services,
cellular telephone services and products and prepaid phone cards employing
alternative "smart" card technologies, may reduce demand for traditional
land-line long distance telephone services generally and the Company's services
in particular. The Company's success will depend on the Company's ability to
anticipate and respond to these and other factors affecting the industry,
including changes in customer preferences, business and demographic trends,
unfavorable general economic conditions and discount pricing strategies by
competitors.

Regulatory changes may also result in significantly increased
competition. In October 1995, the FCC terminated AT&T's designation as a
dominant carrier, which made it easier for AT&T to compete directly with the
Company for low volume commercial long distance customers. Also, the 1996
Telecommunications Act is designed to introduce increased competition in
domestic telecommunications markets by facilitating the entry of any entity
(including cable television companies and utilities) into both the long distance
and local telecommunications markets. Consequently, this act increases the
potential for increased competition by permitting long distance and regional
carriers in local markets and the well-capitalized RBOCs and local exchange
carriers in long distance markets.

Employees

In October 1997, the Company outsourced its back office operations,
which included collections, customer service and provisioning, reducing its
workforce from 26 to 7 employees. The effect of this action was to significantly
reduce overhead costs and with the direct intention of improving customer
service. The company currently employs seven staff. None of the Company's
employees are represented by a union. The Company considers relations with its
employees to be satisfactory.

Item 2. Description of Property

The Company's offices located at 1451 West Cypress Creek Road, Suite
200, Fort Lauderdale, Florida are leased by the Company under a four-year lease
that expires in March 2000 and comprises 7,950 square feet. The Company pays
rent of approximately $8,000 per month, which is subject to a 4% adjustment on
an annual basis.

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The Company had closed its sales office located in Winter Park, Florida
and has sublet its lease that expires on December 31, 1998 for the 925 square
foot space. The Company pays rent of approximately $500 per month.

The Company believes its existing facilities are adequate to meet
current needs and it does not anticipate any difficulty in negotiating renewals
as leases expire or in finding other satisfactory space if existing facilities
become unavailable or if additional space is needed.

Item 3. Legal Proceedings

Current Legal Proceedings. The Company is a defendant in a civil action
styled Group Discount Dialing v. Group Long Distance, Inc., Case No.
CV-96-025165 S, pending in Connecticut. In this action brought in October 1997,
Group Discount Dialing seeks approximately $500,000 as damages. On October 7,
1997, a default for failure to plead was entered against the Company. The
Company filed a motion to open default on November 5, 1997, which was never
acted upon by the court. On December 12, 1997, the case was dismissed due to the
failure by Group Discount Dialing to take the steps necessary to secure a
judgement, but was reopened on January 22, 1998. Group Discount Dialing
subsequently filed a motion for hearing on damages. In response to such motion,
the Company filed various motions, including a motion for the extension of time
to respond to plaintiff's interrogatories and filed a counterclaim, asserting
breach of contract by Group Discount Dialing. The Court has not yet ruled on
such motions. The Company has also filed a counter suit in a civil action styled
Group Long Distance, Inc. v. Sharon N. Kasek d/b/a Group Discount Dialing Case
No. 94-0472 CA 5, which is pending in Florida. The Company is seeking $50,000 in
damages for breach of contract.

The Company was a defendant in a civil action styled AT&T Corp. v.
Group Long Distance, Inc., Civil Action No. 97-2226 (NAP), in the United States
District Court for the District of New Jersey. In this action brought in April
1997, AT&T sought approximately $548,000, plus accumulated interest and
attorneys' fees as damages for breach of a settlement agreement entered into
between AT&T and the Company in 1993 and for unpaid tariff charges for
telecommunications services provided to the Company by AT&T. The Company
answered the complaint and asserted certain counterclaims, including claims for
rescission of the settlement agreement as well as for damages in contract, in
tort and pursuant to the Federal Communications Act with the Company. The
parties have executed mutual releases and the action has been dismissed.

On February 17, 1998 a Settlement Agreement was entered into between
the Company and WorldCom, Inc. ("WorldCom") whereby the Company agreed to pay to
WorldCom the total sum of $1,000,000 ("Settlement Amount") in full and complete
settlement of all claims between the parties. $75,000 of the Settlement amount
was payable upon execution of the Settlement Agreement, $75,000 was payable on
the close of business on February 23, 1998 and the balance is payable in monthly
installments of $50,000 per month commencing one month from execution of this
Agreement. The balance of the Settlement Amount shall bear simple interest on
the unpaid principal at the rate of 16% per annum. The Settlement Amount is
fully reflected in the books of the Company and included in Notes Payable for
the year ended April 30, 1998. To date the Company has made all payments in
terms of the Settlement Agreement.

On March 26, 1998, the Company sold its customer base of existing
customers using the WorldCom service to another reseller of WorldCom services
for a nominal gain and used the proceeds from this sale against the Settlement
Amount.

8
<PAGE>

In 1996, Nortel, Inc. ("Nortel") and Accutel Communications, Inc.
("Accutel") filed combined suits against the Company in a civil action styled,
Nortel, Inc. and Accutel Communications, Inc. v. Group Long Distance, Inc., Case
No. 96-014773 (07) (Broward County, Florida), alleging causes of action for
anticipatory breach of contract and breach of contract arising from the
termination by the Company of service under a service contract and independent
marketing distributor agreement with each party. The Company terminated the
telephone services of Nortel and terminated the distributor relationship with
Accutel for breaches of contract, including the failure to comply anticipatorily
and wrongfully terminated their contracts, and Accutel claims that the Company
owes it $89,664 in unpaid commissions. Nortel sued for an injunction against the
Company's termination of telephone services and was awarded an ex-parte
temporary injunction, but at a hearing for dissolution of the order the Court
immediately ordered the dissolution of the prior injunction and ordered all
parties to attend mediation. In April 1998, the suit was settled. Pursuant to
the settlement, the parties mutually waived all claims against each other and
executed general mutual releases.

Other Matters and Indemnification. Pursuant to the Plan and Agreement
of Merger dated November 14, 1995 (the "Plan"), Group Long Distance, Inc., a
Florida corporation ("GLD"), was merged (the "Merger") into Second ITC and
Second ITC changed its name to Group Long Distance, Inc. The Plan stated that
the shareholders of GLD would own 94% of the outstanding shares of Second ITC
and the existing shareholders of Second ITC would own the remaining 6% of the
shares outstanding. Because the founders of GLD held certain founding shares
(the "Founders' Shares") in Second ITC, there was a partial dilution of the
interests received by the shareholders of GLD in the Merger from 94% to 87.5%
(the "Dilution"). While the Merger was approved by the Board of Directors and a
majority of the shareholders of the Company that were shareholders of GLD (the
predecessor) at the time of the Merger and a majority of the then current
shareholders of the Company, shareholders affected by the Dilution may have a
cause of action against the Company. There can be no assurance that a
shareholder may not seek legal remedy against the Company or the individual
founders, notwithstanding the foregoing approvals. In the event any such action
is brought, the Company's results of operations or cash flow for a particular
quarterly or annual period could be materially affected by protracted litigation
or an unfavorable outcome.

In connection with the foregoing matter, pursuant to an indemnification
agreement, the Company and each of the founders, jointly and severally, have
agreed to indemnify the underwriters to the Offering, and each of the founders
has agreed to indemnify the Company, for any and all losses, claims, damages,
expenses or liabilities (including reasonable legal fees and expenses) as a
result of any claim arising out of or based upon the failure to disclose the
issuance of the shares to the founders and in the event that as a result of any
such claim, the Company is required to issue additional shares of Common Stock,
the founders have agreed to deliver an equal number of shares of Common Stock to
the Company for cancellation.

General. The Company is from time to time the subject of complaints or
litigation in the ordinary course of its business. Except as disclosed, the
Company believes that such lawsuits, claims and other legal matters to which it
has become subject are not material to the Company's financial condition or
results of operations, but an existing or future lawsuit or claim resulting in
an unfavorable outcome to the Company could have a material adverse effect on
the Company's financial condition and results of operations.

Item 4. Submission of Matters to a Vote of Securities Holders

None.

9
<PAGE>

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Price Range of Common Stock and Redeemable Warrants. Since March 31,
1997, the date the following shares first traded, the Common Stock and the
Redeemable Warrants have been quoted on the Nasdaq SmallCap Market under the
symbols "GLDI" and "GLDIW," respectively, and on the BSE under the symbols "GPL"
and "GPLW", respectively. Prior to March 31, 1997, the Common Stock traded on a
limited basis on the OTC Bulletin Board, under the symbol "GLDT" and prior to
that date the Redeemable Warrants did not trade.

The following sets forth, for the periods indicated, high and low per
share bid information for the Common Stock reported on the Nasdaq SmallCap
Market. Such high and low bid information reflect inter-dealer quotas without
retail, mark-up, mark down or commissions and may not represent actual
transactions:

For the period beginning
May 1, 1997 and
Ending April 30, 1998
------------------------
High Low
------ -----
<S> <C> <C>

First Quarter................................. $6.469 $3.250
Second Quarter................................ 5.375 3.875
Third Quarter................................. 4.875 3.313
Fourth Quarter................................ 5.125 2.500
</TABLE>

The following table sets forth, for the periods indicated, high and low
per share bid information for the Company's Redeemable Warrants reported on the
Nasdaq Small Cap Market. Such high and low bid information reflect inter-dealer
quotas without retail, mark-up, mark down or commissions and may not represent
actual transactions:

For the Period beginning May 1, 1997
and ending April 30, 1998
-------------------------------------
High Low
----- -----
<S> <C> <C>

First Quarter................................. $1.750 $0.750
Second Quarter................................ 2.125 1.063
Third Quarter................................. 1.875 0.750
Fourth Quarter................................ 1.938 0.875
</TABLE>

Dividend Information. The Company has not paid any cash dividends to
date and does not anticipate or contemplate paying dividends in the foreseeable
future. It is the present intention of management to utilize all available funds
for the development of the Company's business.

10
<PAGE>

Approximate Number of Security Holders. As of August 5, 1998, the
Company had approximately 118 registered holders of record of the Common Stock
and 4 registered holders of record of the Redeemable Warrants.

Item 6. Management's Discussion and Analysis or Plan of Operation

The following discussion and analysis of significant factors affecting
the Company's operating results and liquidity and capital resources should be
read in conjunction with the accompanying financial statements and related
notes.

Overview

Group Long Distance, Inc. (the "Company") is a long distance
telecommunications provider. The Company utilizes special network service
contracts through major national long distance telecommunications carriers to
provide its customers with products and services which include basic "1 plus"
and "800" long distance services. As a nonfacilities based reseller of long
distance telecommunication services, the Company utilizes service contracts to
provide its customers with switched, dedicated and private line services to
various long distance telecommunications networks such as Tel-Save, Inc.
("Tel-Save"). The Company is dependent on a limited number of long distance
carriers and numerous regional and local telephone companies to provide its
services and products. The majority of the Company's revenues are derived from
calls routed through Tel-Save. Such revenues represented 96%, 74% and 61% of
total revenues for the years ended April 30, 1998, 1997 and 1996, respectively.

To obtain favorable rates from its carriers, the Company has committed
to purchase certain minimum volumes of long distance services during stated
periods, whether or not such volumes are used. For the years ended April 30,
1998 and April 30, 1997 such commitments aggregated approximately $36,000,000
and $8,600,000, respectively. Failure to satisfy volume purchase commitment or
price increases by carriers could materially adversely affect the Company's
future operating results. The Company periodically renegotiates its volume
commitments with its carriers.

In October 1997, the Company outsourced its back office operations,
which included collections, customer service and provisionary reducing its work
force from 26 to 7 employees. The effect of this action was to significantly
reduce overhead costs with the direct intention of improving customer service.

The Company relies on the marketing of its services, which is currently
performed by independent telemarketers and independent agents, to generate a
significant portion of its revenues. As a result of the economic efficiencies of
using independent telemarketers, the Company significantly increased its use of
telemarketers during the fiscal year 1998.

The Company had historically experienced delays in provisioning
(activating new customers) by its carriers. In an effort to improve provisioning
efficiencies, beginning in the fourth quarter of its 1997 fiscal year, new
customers of domestic switched, basic "1 plus" and "800" services have been
provisioned through Tel-Save's own nationwide telecommunications network, One
Better Net ("Tel-Save's OBN"). This network enables the Company to provide the
quality of AT&T (now Lucent Technologies, Inc.) switches and AT&T-provided
transmission facilities and billing services.

11
<PAGE>

that such efficiencies will improve or collections and customer retention will
increase.

The Company's operating results are significantly affected by customer
attrition rates. The Company believes that a high level of customer attrition in
the industry is primarily a result of national advertising campaigns,
telemarketing programs and customer incentives provided by major competitors, as
well as the termination of service for non-payment.

In connection with the acquisition of Adventures-in-Telecom, Inc
("AIT") in July 1996, the Company acquired a customer base of approximately
30,000 small businesses and recorded an asset of approximately $6.6 million at
July 31, 1996, of which $5.6 million (net of receivables and marketing advances)
was to be amortized, over a five-year period. In December 1996, due to
significant attrition in the AIT customer base, the Company accelerated the
amortization of the acquisition costs of such base to the rate of 75% for the
first year (approximately $3,888,700) which had a material adverse effect on the
Company's operating results for the fiscal year ended April 30, 1997. The
Company amortized the remaining balance of customer acquisition costs of
approximately $1,730,000 at a rate of 15% and 10%, respectively, over the second
and third years after such acquisition. For the year ended April 30, 1998, the
company amortized approximately $1,131,200 with approximately $598,700 to be
amortized during the 1999 fiscal year.

The Company's ability to continue and to expand its operations is
dependent upon the Company's ability to maintain satisfactory relationships with
existing carriers and independent telemarketers and establish relationships with
additional carriers and independent telemarketers.

The Company operates in a highly fragmented segment of the
telecommunications industry and has historically expanded its operations through
the acquisition of customer bases. The Company regularly evaluates possible
acquisition opportunities and may seek to acquire smaller resellers and customer
bases in order to expand the distribution of its services and products and its
geographic markets. Except as otherwise disclosed herein, the Company has no
plans, agreements, commitments, understandings or arrangements with respect to
any acquisition. There can be no assurance that the Company will ultimately
effect any acquisition, that the Company will not experience increased customer
attrition as a result of any acquisition, that the Company be able to
successfully integrate into its operations any business or customer base which
it may acquire, or that the Company will be able to service any debt or other
obligations incurred in connection with such acquisition.

The Company intends to expand its marketing activities by continuing
the use of independent telemarketers. The Company will also continue to (i)
develop strategic marketing relationships, (ii) regularly evaluate possible
acquisition opportunities, and (iii) improve operating and network efficiencies.
The Company's ability to achieve these objectives will be affected by, and to a
certain extent dependent on, many factors that are beyond the control of the
Company. Thus, no assurance can be given that such objectives can be or will be
achieved.

12
<PAGE>

Acquisitions

In August 1997, the Company acquired Eastern Telecommunications
Incorporated ("ETI"). The $8.313 million purchase price for ETI consisted of two
$3.5 million notes, two warrants to purchase 1,347,000 shares of Tel-Save, at
$4.08 per share ("the Warrants"), the assumption of approximately $1.2 million
of certain of ETI's liabilities and the payment of closing costs in the amount
of $113,000. On August 11, 1997, the Company exercised one of the Warrants and
purchased 600,000 shares of common stock of Tel-Save at the aggregate exercise
price of $2,448,000. In October 1997, the Company exercised the remaining
Warrant and sold the common stock for approximately $27 million with a gain on
sale of $13.4 million.

In January 1997, the Company purchased from Great Lakes
Telecommunications Corp. ("Great Lakes") (i) a customer base consisting of
approximately 7,000 customers that were subject to an agreement between Great
Lakes and Tel-Save and (ii) a warrant to purchase 200,000 shares of Common Stock
of Tel-Save in consideration of $1,200,000 in cash. In connection with the
acquisition, the Company borrowed $1,200,000 from Tel-Save. In January 1997,
Tel-Save repurchased the warrants from the Company in consideration of
$1,800,000 and credited the Company with such amount ($1,200,000 to repay the
loan made in January 1997 and $600,000 to reduce the outstanding principal
balance under the AIT Acquisition Loan, described below). The $600,000 reduction
of debt by Tel-Save has been accounted for as a contribution to paid-in capital
by Tel-Save. In connection with the acquisition, no value was assigned to the
customer base acquired.

In July 1996, the Company acquired all of the issued and outstanding
capital stock of AIT, a non-facilities based reseller of long distance
communications services. The purchase price was comprised of $5,271,230 in cash
and 200,000 restricted shares of Common Stock of the Company. The acquired
assets consisted of a customer base of approximately 30,000 small businesses. In
December 1996, the Company agreed with the former shareholders of AIT to cancel
45,000 of the 50,000 shares that were subject to certain holdback provisions, in
settlement of certain claims by the Company against the AIT shareholders. In
December 1996, the Company accelerated the amortization of the acquisition costs
of the AIT customer base due to significant customer attrition, resulting in
$2,333,200 of additional amortization expense for the year ended April 30, 1997.
In connection with the AIT acquisition in July 1996, the Company entered into an
agreement with Tel-Save pursuant to which it borrowed an aggregate of $5,521,230
primarily to finance the purchase price of the acquisition (the "Acquisition
Loan"). As of April 30, 1998, the note was paid in full. To induce Tel-Save to
provide the financing for the purchase of AIT, the Company issued a warrant to
purchase 300,000 shares of Common Stock of the Company at $5.75 per share and a
warrant to purchase 50,000 shares of Common Stock of the Company at $5.00 per
share. Both warrants are exercisable through July 2001 and subject to certain
registration rights. In June 1997, these warrants were returned to the Company
from Tel-Save for no consideration. Higher than expected customer attrition was
primarily attributable to the Company's inability to implement customer service
and retention program, including delays in provisioning customers, as well as
increased competition with respect to such customer base.

13
<PAGE>

In May 1996, the Company acquired all of the issued and outstanding
capital stock of Gulf Communications Services, Inc. ("Gulf") in consideration of
$25,000 in cash and the assumption of a promissory note in the principal amount
of $182,000. Such note was payable in equal monthly installments of $10,000 and
was repaid in full in May 1998. The acquired company operated switching
equipment in Fort Lauderdale, Florida, which allowed it to act as an
international call back and call through provider and also offered prepaid long
distance calling cards. This business was discontinued in July 1997. See "Note P
to the Company's Financial Statements."

Results of Operations

The following table sets forth for the periods indicated the
percentages of total sales represented by certain items reflected in the
Company's consolidated statements of operations:

Year Ended April 30,
----------------------
1998 1997
---- ----

Sales 100% 100%
Cost of sales 70 73
Gross profit 30 27
Selling, general and administrative expense 17 24
Telemarketing expenses 49 --
Depreciation and amortization expense 4 19
Unusual and non-recurring item -- 2
Gain on sales of investments 25 --
Interest expense, net 1 2
Loss before income taxes 17 20
Income taxes 1 2
Net loss 18 18

Comparison of Fiscal Year Ended April 30, 1998 to Fiscal Year Ended April 30,
1997

Sales. The Company's sales were $54,340,938 for the fiscal year ended
April 30, 1998 compared to $23,430,846 for the fiscal year ended April 30, 1997,
an increase of $30,910,092 or 132%. The increased sales are a combination of the
Company's increased telemarketing efforts which added $37,875,327 to sales,
offset by a decline in sales from the Company's existing customers of
$6,965,235.

Cost of Sales. Cost of sales was $38,118,173 for the fiscal year ended
April 30, 1998 compared to $17,219,730 for the fiscal year ended April 30, 1997,
an increase of $20,898,443 or 121%. As a percentage of sales, cost of sales was
70% and 73% for the fiscal years ended April 30, 1998 and April 30, 1997,
respectively. The increase in cost of sales was due to the increase in sales
that resulted from the telemarketing efforts. Gross profit was $16,222,765 for
the fiscal year ended April 30, 1998 compared to $6,211,116 for the fiscal year
ended April 30, 1997, an increase of $10,011,649 or 161%. As a percentage of
sales, gross profit was 30% and 27% for the fiscal years ended April 30, 1998
and April 30, 1997, respectively. The increase in gross profit and gross profit
percentage was primarily due to the increased sales at a lower cost as the
Company was able to better negotiate its buy rate from its carriers.

Selling, General and Administrative Expense. Selling, general and
administrative expenses ("SG&A") were $9,345,163 for the fiscal year ended April
30, 1998 compared to $5,524,022 for the fiscal year ended April 30, 1997, an
increase of $3,821,141 or 69%. This increase in SG&A was due primarily to
increased sales and increased bad debt expense, which was offset by improved
operating efficiencies and a reduction in staff. As a percentage of sales, SG&A
for the fiscal years ended April 30, 1998 and 1997 was approximately 17% and
24%, respectively. This decrease was due to the increase in sales without a
significant change in expenditure and the resulting cost savings from
outsourcing back office operations.

14
<PAGE>

Telemarketing Expenses. Telemarketing expenses were $26,570,215 for the
fiscal year ended April 30, 1998. These expenses were incurred as a result of
increased telemarketing efforts in the fiscal year ended April 30, 1998 and
which resulted in increased sales of approximately $37.8 million for the fiscal
year ended April 30, 1998. The Company did not incur any such telemarketing
expenses during the fiscal year ended April 30, 1997.

Depreciation and Amortization Expense. Depreciation and amortization
expense was $2,369,410 for the fiscal year ended April 30, 1998 compared to
$4,495,609 for the fiscal year ended April 30, 1997, a decrease of $2,126,199 or
47%. The significant reduction in depreciation and amortization for the year
ended April 30, 1998 was attributable to the use of a rate of 15% and 10% for
the second and third years rather than the first year rate of 75%. This was the
result of the Company's change in the estimated rate of amortization in the
third quarter of the fiscal year ended April 30, 1997 of the AIT customer base
due to significant customer attrition. As a percentage of total sales,
depreciation and amortization expense was 4% and 19% for the fiscal years ended
April 30, 1998 and April 30, 1997, respectively.

Unusual and Non-Recurring Item. The usual and non-recurring item
reported of $460,720 for the fiscal year ended April 30, 1997 represents costs
associated with the unauthorized usage of the Company's Direct Inward Dialing
circuits. This usage resulted in the Company's inability to recover long
distance service and switching charges associated with such circuits. These
circuits were disconnected and no further unauthorized usage is possible. (see
Note P to Notes to Financial Statements.) The Company experienced no further
losses during the fiscal year ended April 30, 1998.

Interest Expense Net. Interest expense (net) for the fiscal year ended
April 30, 1998 was $340,333 compared to $365,487 for the fiscal year ended April
30, 1997, a decrease of $25,154 or 7%. The Company currently pays interest on a
portion of its payables. Interest expense for the years ended April 30, 1998 and
1997 was primarily due to the interest payable on the $5,521,230 loan from
Tel-Save in July 1996, which was primarily used to complete the AIT acquisition
(the "AIT Loan"). In addition, interest was paid during the 1998 fiscal year on
the two Notes in connection with the ETI acquisition. The outstanding AIT loan
balance was repaid in full in October 1997 with the proceeds from the sale of
the Tel-Save common stock acquired as part of the purchase of ETI.

Income Taxes. The provision for income taxes was $649,900 in fiscal
1998 compared to a benefit of $502,000 in the prior year. This higher effective
rate resulted from an increase in the valuation allowance because the
recognition of the deferred tax assets is not more likely than not as a result
of the Company's continuing operating losses. Also, the Company recognized an
additional gain for tax purposes on the sale of Tel-Save stock which has been
treated as a permanent difference for financial accounting purposes.

Net Loss. The Company had a net loss of $9,633,330, or net loss of
$2.76 per share, for the year fiscal year ended April 30, 1998, as compared to a
net loss of $4,132,722, or $1.78 per share, for the fiscal year ended April 30,
1997. The net loss was a result of the expensing in full during the current
fiscal year of approximately $26.5 million of telemarketing expenses.

Liquidity and Capital Resources

The Company's primary cash requirements have been to fund the
acquisition of customer bases and increased levels of accounts receivable which
have required substantial working capital. The Company has historically
satisfied its working capital requirements principally through cash flow from
operations (including advances from Tel-Save) and borrowings from institutions
and carriers. The Company expects that Tel-Save will continue to make operating
advances as needed in fiscal 1999.

At April 30, 1998, the Company had a working capital deficit of
$8,851,762, as compared to working capital surplus of $32,609 at April 30, 1997.
The decrease in the working capital surplus was primarily attributable to the
increase in accounts payable as a result of the telemarketing efforts during the
current fiscal year. These telemarketing efforts led to the Company incurring
$26,570,215 in marketing expenses which was included in accounts payable and of
which $21,896,178 was repaid during the 1998 fiscal year. These telemarketing
efforts resulted in approximately 360,000 new orders and additional revenues of
approximately $37.8 million for the current fiscal year.

On March 24, 1997, the Company commenced an underwritten public
offering (the "Offering") whereby 1,250,000 shares of its Common Stock, no par
value (the "Common Stock"), and warrants to purchase 1,437,500 shares of Common
Stock (the "Redeemable Warrants") were sold. Of the Redeemable Warrants sold,
warrants to purchase 187,500 shares of Common Stock were sold pursuant to the
underwriters' over-allotment option. Of the approximately $3.9 million of net
proceeds, approximately $1.4 million of the proceeds remained available to the

15
<PAGE>

Company at April 30, 1997. During the 1998 fiscal year, the
Company used the $1.4 million balance of proceeds for working capital and
general business purposes, including marketing and sales expenses.

Net cash used in operating activities was $13,515,744 for the fiscal
year ended April 30, 1998 as compared to cash provided by operating activities
of $2,648,191 for the fiscal year ended April 30, 1997. The increase in cash
used in operating activities is primarily attributable to the gain on sale of
investments of $13,418,926, proceeds of which are reflected in cash flows from
investing activities. Also, cash used in operating activities increased due to
an increase in accounts receivable offset by an increase in accounts payable as
a result of the telemarketing campaign during the 1998 fiscal year. Net cash
provided by investing activities was $21,134,760 for the fiscal year ended April
30, 1998, as compared to net cash used in investing activities of $5,458,335 for
the fiscal year ended April 30, 1997. The increase in cash provided by investing
activities was primarily attributable to the ETI acquisition and the resultant
sale of the Tel-Save common shares. Net cash used in financing activities was
$9,292,600 for the fiscal year ended April 30, 1998 as compared to net cash
provided by financing activities for the fiscal year ended April 30, 1997 of
$4,708,923. The increase in cash used in financing activities was primarily
attributable to paying down debt and accounts payable owed to Tel-Save,
including payment of the balance of the loan outstanding to Tel-Save in
connection with the July 1996 acquisition of all of the common stock of
Aventures-in-Telecom ("AIT") and marketing expenses incurred in connection with
the Company's telemarketing efforts during the 1998 fiscal year. At April 30,
1998, the Company had cash of $303,962.

Proceeds from loans and lines of credit during the year ended April 30,
1998 were $87,044 compared to $6,405,335 during the year ended April 30, 1997.
In addition, the Company also received certain advances from its carrier. These
advances amounted to approximately $5.0 million and are included in Accounts
Payable. These advances were used for telemarketing and working capital
purposes. Repayment of loans and lines of credit during the years ended April
30, 1998 and 1997 totaled $9,444,813 and $5,591,867, respectively. Proceeds from
the sale of the Tel-Save shares were used to retire the aggregate $7,000,000 in
promissory notes (and accrued interest) due in connection with the ETI
acquisition, together with certain related closing costs. The balance of the
proceeds from the sale of the Tel-Save shares was used to pay off the balance of
the loan outstanding to Tel-Save in connection with the July 1996 acquisition of
all of the common stock of Aventures-in-Telecom ("AIT").

The Company's gross accounts receivable increased by $4,937,444 during
the fiscal year ended April 30, 1998 to $9,050,598 from $4,113,154 during the
prior period. Accounts receivable were 86% of total assets at April 30, 1998,
compared to 37% of total assets at April 30, 1997. The Company's allowance for
doubtful accounts decreased by approximately $48,000, to $572,000 compared to
$620,000 in the prior period. Accounts payable increased during the fiscal year
ended April 30, 1998 by $11,543,626, to $15,816,506 from $4,272,880 as compared
to the fiscal year ended April 30, 1997. Accounts payable was 160% and 45% of
total liabilities and equity at April 30, 1998 and at April 30, 1997,
respectively.

In May 1996, the Company entered into an agreement with Gateway
American Bank of Florida ("Gateway") pursuant to which it borrowed $50,000 which
was repaid in full by April 30, 1998. In August 1996, the Company entered into
an agreement with Gateway which, renewed as of December 1997, provides for a
line of credit of up to $150,000, bearing interest at the prime rate plus 1% and
which matures on September 5, 1998. Repayment of the loan and the line of credit
is secured by all of the Company's equipment, machinery, furniture and general
intangibles and is personally guaranteed by Gerald M. Dunne, Jr., President and
Chief Executive Officer of the Company. As of April 30, 1998, an amount of
$87,044 was outstanding under this line of credit.

In July 1996, Global Telecom Network, Inc., a company controlled by
Gerald M. Dunne, Sr., the father of Gerald M. Dunne, Jr. President and Chief
Executive Officer of the Company, converted accounts payable to the Company into
a promissory note in the principal amount of $182,050 bearing interest at a rate
of 15% per annum. The note was repaid in full on December 8, 1997.

16
<PAGE>

The Company's accounts receivable, less allowance for doubtful
accounts, at April 30, 1998 were $8,478,598, as compared to $3,493,154 at April
30, 1997. Of the Company's accounts receivable at April 30, 1998, less than 2%
of the total were more than 90 days outstanding. This is due in part to the move
to LEC billing and the Company writing off at year end of all doubtful accounts.
Increased accounts receivable days outstanding has required the Company to use
substantial working capital to finance receivables which has materially
adversely affected its liquidity and working capital position.

At April 30, 1998, the Company's allowance for doubtful accounts was
approximately $572,000 as compared to approximately $620,000 at April 30, 1997,
which the Company believes is currently adequate for the size and nature of its
receivables. Nevertheless, delays in collection or uncollectibility of accounts
receivable could continue to have a material adverse effect on the Company's
liquidity and working capital position and could require the Company to
continually increase its allowance for doubtful accounts. Bad debt expense
accounted for 10% of the Company's revenues for the year ended April 30, 1998
and 6% for the year ended April 30, 1997. This increase was due to a decision by
the Company to write off all doubtful accounts in the current fiscal year.

The Company's capital requirements have been and will continue to be
significant. Historically, the Company has been dependent on financings to fund
its cash requirements. The Company may seek debt or equity financing to fund its
continuing expansion through acquisitions. In the event that the Company's plans
change, its assumptions change or prove to be inaccurate or if the projected
cash flow prove to be insufficient to fund operations (due to unanticipated
expenses, operating difficulties or otherwise), the Company would be required to
seek additional financing earlier than anticipated or curtail its operations.

Effects of Inflation

The Company does not believe that inflation has had a significant
impact on its operations for the fiscal year ended April 30, 1998.

Legal Proceedings

17
<PAGE>

Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). This pronouncement becomes effective for fiscal years beginning
after December 15, 1997. SFAS 130 will require entities to report "comprehensive
income" which will be divided into two components, "net income" and
"comprehensive income".

FASB Statement 131, Disclosures about Segments of an Enterprise and
Related Information, applies only to publicly held business entities. The
principal changes from current practice for reporting segment information under
SFAS 14, Financial Reporting for Segments of an Enterprise, include (a) use of a
management approach as a basis for segmentation, rather than an industry
approach, (b) more detailed disclosure requirements, including disclosure of
significant factors used to determine reportable segments, and (c) a requirement
to disclose segment information in interim financial statements.

18
<PAGE>

The Company believes that these statements will have no impact on the
Company's results of operations or financial position upon adoption.

Subsequent Events

The Company owes AT&T approximately $548,000 under a previously
executed settlement agreement relating to certain billing disputes. The Company
was a defendant in a civil action styled AT&T Corp. v. Group Long Distance,
Inc., Civil Action No. 97-2226 (NAP), pending in the United States District
Court for the District of New Jersey. In this action brought in April 1997, AT&T
sought $612,324 and attorneys' fees as damages for breach of a settlement
agreement entered into between AT&T and the Company in 1993. AT&T also sought to
recover this $612,324 under a separate claim for unpaid tariff charges. The
Company answered the complaint and asserted certain counterclaims. These
counterclaims included claims for rescission of the settlement agreement as well
as for damages in contract, in tort and pursuant to the Federal Communications
Act. In June 1998 a Settlement Agreement was entered between the parties.

On July 2, 1998, the Company's Board of Directors amended the
unexercised options granted under the Company's 1996 Stock Option Plan to
purchase a total of approximately 434,000 shares of common stock from $5.0625 to
$1.375. Such a change in purchase price was a result of the trading price of the
Company's Common Stock being below the exercise price of the options.

Factors That Could Affect Operating Results

This Annual Report on Form 10-KSB contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission ("SEC") filings
and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements, due to the following factors, among
other risks and factors identified from time to time in the Company's filings
with the SEC:

o The Company's operations are based upon agreements with a limited
number of long-distance carriers who provide access to phone lines and
transmission facilities. The Company is dependent upon such carriers
for such services, and there is a reasonable possibility that there
could be equipment failures or other service interruptions that could
materially affect the Company. Such delays could result in postponed or
possibly lost sales, which could adversely affect the Company's results
from operations.

o The majority of the Company's revenues are derived from calls routed
through Tel-Save, a nationwide telecommunications provider. Such
revenues represented 96%, 74%, and 61% of total revenues for the years
ended April 30, 1998, 1997 and 1996, respectively. Poor performance by
Tel-Save could have material adverse affect on the Company's operating
results.

o To obtain favorable rates from its carriers, the Company has
committed to purchase certain minimum volumes for long distance
services during stated periods, whether or not such volumes are used.
Failure to satisfy such commitments could have a material adverse
effect on the Company's operating margins and results of operations. In
addition, because the Company has commitments to purchase fixed volumes
of use at predetermined rates, if carriers were to lower the rates made
available to the Company's target market without a corresponding
reduction in the Company's rates, the Company could be materially
adversely affected.

o The Company markets its services principally through independent
telemarketers, over whom the Company has limited control. Poor
performance by telemarketers, or any misstatements or omissions by them
could have a material adverse affect on the Company's operating
results.

19
<PAGE>

o The Company has historically satisfied its working capital
requirements principally through cash flow from operations and
borrowings. The Company's ability to obtain future financing may be
limited by its existing debt level and pre-existing liens on its assets
pledged as collateral in connection with certain borrowings.

o Increased accounts receivable has required the Company to use
substantial working capital to finance receivables, which has
materially adversely affected its liquidity and working capital
position. Delays in collection or uncollectibility of accounts
receivable could require the Company to continually increase its
allowance for doubtful accounts and could have a material adverse
impact on its results of operations.

o The Company is dependent on sales of long distance services to
smaller commercial customers. As a result, the Company's growth
prospects will be largely dependent upon the Company achieving greater
penetration of the low volume commercial long distance market.
Achieving greater penetration in this market will require substantial
marketing efforts and expenditure of significant funds to increase
customer awareness of the cost and other advantages of the Company's
services. The Company's ability to expand its customer base will be
dependent upon the number of telemarketers it engages and their
efforts, as well as the successful integration of future acquisitions,
if any, into the Company's operations.

o The Company's operating results are significantly affected by
customer attrition rates. Customers are not obligated to purchase any
minimum usage and may discontinue service without penalty at any time.
The Company typically experiences higher customer attrition rates
during the first year following the acquisition of a customer base from
other resellers.

o The Company regularly evaluates possible acquisition opportunities.
There can be no assurance that the Company will ultimately effect any
acquisition, that the Company will not experience increased customer
attrition as a result of any acquisition, that the Company will be able
to successfully integrate into its operations any business or customer
base which it may acquire, or that the Company will be able to service
any debt obligation in connection with any acquisition. Any inability
to do so, particularly in instances in which the Company has made
significant capital investments, would have a material adverse effect
on the Company.

o The Company's continued expansion will be largely dependent upon its
ability to maintain its operating margins, obtain competitive
telecommunications network services on a timely basis and on
commercially reasonable terms, hire and retain skilled management,
marketing and other personnel and successfully manage growth (including
monitoring operations, controlling costs and maintaining effective
management and credit controls). There can be no assurance that the
Company will be able to successfully expand its operations or manage
growth.

o The Company faces intense competition in the marketing and sale of
its services and products. Many of these services and products are
marketed by companies that are well established and have significantly
greater financial resources than the Company. Because the reseller
segment of the telecommunications industry has no substantial barriers
to entry, competition from smaller resellers in the Company's target
markets is also expected to continue to increase significantly. Recent
regulatory changes may also result in significantly increased
competition.

o The Company is subject to federal and state regulation. Failure to
comply with applicable laws, regulations and licensing requirements
could result in civil penalties, including substantial fines, and
certificates of authority may be conditioned, modified, cancelled,

20
<PAGE>

terminated or revoked, any of which could have a material adverse
effect on the Company.

o As a result of increased federal and state regulations governing the
telemarketing of telecommunication services. These regulations
addressed the issues of "slamming" (the unauthorized switching of a
customer's preselected telecommunications provider) and "cramming" (the
unauthorized billing of additional telecommunication services not
requested by the customer) as they affect consumers and require far
more stringent rules before switching a customers service to the
Company's network. See " Industry Background and Government
Regulation."

o Prior to a 1995 court decision, domestic non-dominant carriers were
allowed by the FCC to file tariffs with a "reasonable range of rates"
instead of the detailed schedules of individual charges required of
dominant carriers. After such court decision, which required detailed
rate schedules for domestic offerings in their tariffs, the Company and
most of its competitors relied on the FCC's past practice of allowing
relaxed tariff filing requirements for non-dominant carriers and did
not maintain the required detailed rate schedules. The Company could be
held liable for damages for its failure to do so, although it believes
that such an outcome is highly unlikely and would not have an adverse
effect on it. In order to recover damages, a competing
telecommunications provider would need to demonstrate that the
Company's failure to file detailed rate schedules caused that other
service provider to lose customers and that the Company should be held
liable for the damages. Management is unable to make a meaningful
estimate of the amount or range of loss that could result from an
unfavorable outcome of any potential litigation involving this matter.

o RBOC entry into the long distance market may mean that the Company
will be faced with new competition from well-entrenched,
well-capitalized and marketable companies, that consumers have had
prior dealings with for local access service. This may allow these
RBOCs due to their name recognition and established service practices
to have a significant advantage in their ability to attract long
distance customers and to offer long distance service as an adjunct to
local service access.

Item 7. Financial Statements

The consolidated financial statements of the Company are filed as part
of this Form 10-KSB are set forth on pages F-2 to F-22. The report of Grant
Thornton LLP, independent certified public accountants, dated July 23, 1998,
is set forth on page F-1 of this Form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

<PAGE>

PART III

Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

The information required by this item is incorporated by referenced to
the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders that
will be filed with the Securities and Exchange Commission on or before August
28, 1998.

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits, List and Reports on Form 8-K

(a) Exhibits

Exhibit
Number
- -------

<S> <C>

3.1 __ Amended and Restated Articles of Incorporation of Registrant.
(Filed as an Exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (No. 333-17681) filed March
3, 1996 and incorporated herein by reference.)

3.2 __ Amended and Restated By-laws of Registrant. (Filed as an Exhibit
to Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (No. 333-17681) filed March 3, 1996 and incorporated
herein by reference.)

4.1 __ Form of Representative's Warrant Agreement including Form of
Representative's Warrant Certificates. (Filed as an Exhibit to
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 (No. 333-17681) filed March 3, 1996 and incorporated herein
by reference.)
</TABLE>

22
<PAGE>
<TABLE>
<S> <C>

4.2 __ Form of Redeemable Warrant Agreement including Form of Warrant
Certificate. (Filed as an Exhibit to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (No. 333-17681)
filed March 3, 1996 and incorporated herein by reference.)

4.3 __ Form of Common Stock Certificate.(Filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1997 and incorporated herein by
reference.)

10.1 __ Partition Agreement between Registrant and Tel-Save, Inc. dated
February 3, 1993 (including Security and Assignment Agreement
and Lock Box Agreement). (Filed as an Exhibit to Amendment No. 2
to the Company's Registration Statement on Form SB-2 (No.
33-99998) and incorporated by reference herein and incorporated
herein by reference.)

10.2 __ Purchase and Sale Agreement between Registrant and Rockwell
Communications, Inc. dated February 24, 1994. (Filed as an
Exhibit to the Company's Registration Statement on Form SB-2
(No. 333-17681) filed December 12, 1996 and incorporated herein
by reference.)

10.3 __ Purchase Agreement between Registrant and ACTI, Inc. dated June
1994. (Filed as an Exhibit to the Company's Registration
Statement on Form SB-2 (No. 333-17681) filed December 12, 1996
and incorporated herein by reference.)

10.4 __ Reseller Agreement between Registrant and Touchtone Network,
Inc. dated March 30, 1995. (Filed as an Exhibit to the Company's
report on Form 10-KSB dated August 12, 1996 and incorporated
herein by reference.)

10.5 __ Reseller agreement between Registrant and ARN Communications
Corporation dated April 13, 1995. (Filed as an Exhibit to
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 (No. 33-99998) and incorporated by reference herein.)

10.6 __ Promissory Note payable to John L. Tomlinson and Philip C.
Cezeaux, dated September 25, 1995. (Filed as an Exhibit to
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 (No. 33-99998) and incorporated herein by reference.)

10.7 __ Purchase Agreement between Registrant and Touchtone Network,
Inc. dated October 11, 1995. (Filed as an Exhibit to the
Company's Registration Statement on Form SB-2 (No. 333-17681)
filed December 12, 1996 and incorporated herein by reference.)

10.8 __ Addendum to the Purchase Agreement between Registrant and
Touchtone Network, Inc. dated November 21 and 22, 1995. (Filed
as an Exhibit to the Company's Registration Statement on Form
SB-2 (No. 333-17681) filed December 12, 1996 and incorporated
herein by reference.)
</TABLE>

23
<PAGE>
<TABLE>

<S> <C>

10.9 __ Lease Agreement between Registrant and Chantilly Management
Corporation regarding 1555 Howell Branch Road, Winter Park,
Florida dated December 31, 1995. (Filed as an Exhibit to the
Company's Registration Statement on Form SB-2 (No. 333-17681)
filed December 12, 1996 and incorporated herein by reference.)

10.10 __ Commission Agreement between Registrant and Global Telecom
Network, Inc. regarding Target Stores, a division of Dayton
Hudson Corporation, dated February 1, 1996. (Filed as an Exhibit
to Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (No. 33-99998) and incorporated by herein reference.)

10.11 __ Second Amendment and Renewal of Lease between Registrant and
Gateway Investments Corporation regarding 1451 West Cypress
Creek Road, Fort Lauderdale, Florida dated February 5, 1996.
(Filed as an Exhibit to the Company's Registration Statement on
Form SB-2 (No. 333-17681) filed December 12, 1996 and
incorporated herein by reference.)

10.12 __ Rebiller Services Agreement between Registrant and WorldCom,
Inc. dated February 22, 1996. (Filed as an Exhibit to the
Company's Registration Statement on Form SB-2 (No. 333-17681)
filed December 12, 1996 and incorporated herein by reference.)

10.13 __ Acknowledgement, Agreement and Release between Registrant and
Touchtone Network, Inc. dated March 1996. (Filed as an Exhibit
to the Company's Registration Statement on Form SB-2 (No.
333-17681) filed December 12, 1996 and incorporated herein by
reference.)

10.14 __ Purchase Agreement between Registrant and Mr. Larry C. Cornwell
regarding Gulf Communications Services, Inc. dated May 1, 1996.
(Filed as an Exhibit to the Company's Registration Statement on
Form SB-2 (No. 333-17681) filed December 12, 1996 and
incorporated herein by reference.)

10.15 __ Loan Agreement between Registrant and Gateway American Bank of
Florida dated May 2, 1996. (Filed as an Exhibit to the Company's
Registration Statement on Form SB-2 (No. 333-17681) filed
December 12, 1996 and incorporated herein by reference.)

10.16 __ Purchase Agreement and Plan of Exchange between Registrant and
Adventures-in-TeleCom. Inc. dated July 3, 1996. (Filed as an
Exhibit to the Company's report on Form 10-KSB dated August 12,
1996 and incorporated herein by reference.)

10.17 __ Loan Agreement between Registrant and Tel-Save Inc. dated July
11, 1996. (Filed as an Exhibit to the Company's report on Form
10-KSB dated August 12, 1996 and incorporated herein by
reference.)

10.18 __ Consent and Amendment between Tel-Save, Inc., and Registrant
dated December 2, 1996. (Filed as an Exhibit to the Company's
Registration Statement on Form SB-2 (No. 333-17681) filed
December 12, 1996 and incorporated herein by reference.)

10.19 __ Consent and Amendment between Tel-Save, Inc. and the Registrant
dated January 31, 1997. (Filed as an Exhibit to the Company's
Annual Report on Form 10-KSB for the year ended April 30, 1997
and incorporated herein by reference.)
</TABLE>

24
<PAGE>
<TABLE>
<S> <C>

10.20 __ Agreement between Tel-Save, Inc. and the Registrant, dated
February 28, 1997. (Filed as an Exhibit to the Company's Annual
Report on Form 10-KSB for the year ended April 30, 1997 and
incorporated herein by reference.)

10.21 __ Common Stock Purchase Warrant to purchase 50,000 Shares of
Common Stock granted to Tel-Save Holdings, Inc., by Registrant,
dated December 2, 1996. (Filed as an Exhibit to the Company's
Registration Statement on Form SB-2 (No. 333-17681) filed
December 12, 1996 and incorporated herein by reference.)

10.22 __ Line of Credit Agreement between Registrant and Gateway American
Bank of Florida dated August 1, 1996. (Filed as an Exhibit to
the Company's Registration Statement on Form SB-2 (No.
333-17681) filed December 12, 1996 and incorporated herein by
reference.)

10.23 __ Employment Agreement of Gerald M. Dunne, Jr. with Registrant.
(Filed as an Exhibit to Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (No. 333-17681) filed March
21, 1997 and incorporated herein by reference.)

10.24 __ 1996 Stock Option Plan. (Filed as an Exhibit to Amendment No. 1
to the Company's Registration Statement on Form SB-2 (No.
333-17681) filed March 3, 1996 and incorporated herein by
reference.)

10.25 __ Stock Purchase Agreement dated as of August 11, 1997 among the
Registrant and the selling shareholders of Eastern
Telecommunication Incorporated, together with all exhibits
thereto. (Filed as an Exhibit to the Company's Annual Report on
Form 10-KSB for the year ended April 30, 1997 and incorporated
herein by reference.)

11 __ Statement re: computation of per share earnings.

16.1 __ Letter on change in certifying accountant. (Filed as an Exhibit
to Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (No. 33-99998) and incorporated herein by reference.)

21.1 __ Subsidiaries of Registrant.

27.1 __ Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K

No reports on Form 8-K were filed for the quarter ended April 30,
1998.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the _____th day of
August, 1998.

GROUP LONG DISTANCE, INC.

By: /s/ Gerald M. Dunne, Jr.
------------------------
Gerald M. Dunne, Jr.

Pursuant to the requirements of the Securities Exchange Act of 1945,
this Report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.

Signature Title Date
---------- ------- -----
<S> <C> <C>

/s/ Gerald M. Dunne, Jr. Chief Executive Officer August _____, 1998
- ------------------------- (Principal Executive Officer)
Gerald M. Dunne. Jr.

/s/ Peter J. Russo Chief Financial Officer August _____, 1998
- ------------------------- (Principal Financial Officer)
Peter J. Russo

/s/ Sam D. Hitner Controller August _____, 1998
- ------------------------- (Principal Accounting Officer)
Sam D. Hitner

/s/ Edward Harwood Director August _____, 1998
- -------------------------
Edward Harwood

/s/ C. Shelton James Director August _____, 1998
- -------------------------
C. Shelton James

/s/ Stanley Gottlieb Director August _____, 1998
- -------------------------
Stanley Gottlieb

/s/ John L. Tomlinson Director August _____, 1998
- -------------------------
John L. Tomlinson

</TABLE>

26
<PAGE>

FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

GROUP LONG DISTANCE, INC.
AND SUBSIDIARIES

April 30, 1998 and 1997

<PAGE>

REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors
Group Long Distance, Inc.

We have audited the accompanying consolidated balance sheets of Group Long
Distance, Inc. and Subsidiaries as of April 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years 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 audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Group Long
Distance, Inc. as of April 30, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.

/s/ Grant Thornton LLP

Fort Lauderdale, Florida
July 23, 1998

F-1

<PAGE>

Group Long Distance, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

April 30,

ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash $ 303,962 $ 1,977,546
Accounts receivable less allowance for doubtful
accounts of $572,000 and $620,000 at April 30,
1998 and 1997, respectively 8,478,598 3,493,154
Note receivable - related party - 32,261
Deferred tax assets - 649,900
Prepaid expenses and other current assets 98,710 642,333
------------ ------------

Total current assets 8,881,270 6,795,194
------------ ------------

Property and equipment, net 94,771 347,615
Customer acquisition costs, net 937,484 2,291,221
Other assets - 37,236
------------ ------------

Total assets $ 9,913,525 $ 9,471,266
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Line of credit $ 87,044 $ -
Accounts payable 15,816,506 4,272,880
Accrued expenses and other liabilities 632,600 790,739
Current portion of long-term debt 1,196,882 1,698,966
------------ ------------

Total current liabilities 17,733,032 6,762,585
------------ ------------

Long-term debt, net of current portion 112,280 1,072,307
------------ ------------

Total liabilities 17,845,312 7,834,892
------------ ------------

Stockholders' equity
Preferred stock, no par value, 2,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, no par value, 12,000,000 shares
authorized; 3,502,783 and 3,462,354 shares issued
and outstanding as of April 30, 1998 and 1997,
respectively - -
Additional paid-in capital 5,913,988 5,848,819
Accumulated deficit (13,845,775) (4,212,445)
------------ ------------

Total stockholders' equity (7,931,787) 1,636,374
------------ ------------

Total liabilities and stockholders' equity $ 9,913,525 $ 9,471,266
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-2

<PAGE>

Group Long Distance, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended April 30,

1998 1997
------------ ------------

Sales $ 54,340,938 $ 23,430,846
Cost of sales 38,118,173 17,219,730
------------ ------------

Gross profit 16,222,765 6,211,116

Selling, general and administrative expenses 9,345,163 5,524,022
Telemarketing expenses 26,570,215 -
Unusual and non-recurring item - 460,720
Depreciation and amortization 2,369,410 4,495,609
------------ ------------

Loss from operations (22,062,023) (4,269,235)

Gain on sale of investments (13,418,926) -
Interest expense, net 340,333 365,487
------------ ------------

Loss before income taxes (8,983,430) (4,634,722)

Income tax provision (benefit) 649,900 (502,000)
------------ ------------

Net loss $ (9,633,330) $ (4,132,722)
============ ============

Net loss per common share - basic $ (2.76) $ (1.78)
============ ============

The accompanying notes are an integral part of these statements.

F-3

<PAGE>

Group Long Distance, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

For the Years Ended April 30, 1998 and 1997

<TABLE>
<CAPTION>
Total
Shares of Additional Stockholders'
Common Common Paid-in Accumulated Equity
Stock Stock Capital Deficit (Deficit)
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1996 2,057,354 $ - $ 268,364 $ (79,723) $ 188,641

Issuance of common stock
for AIT acquisition 155,000 - 1,085,000 - 1,085,000

Capital contribution by
Tel-Save - - 600,000 - 600,000

Net proceeds of sale
of common stock
and warrants 1,250,000 - 3,895,455 - 3,895,455

Net loss - - - (4,132,722) (4,132,722)
------------ ------------- ------------ ------------ ------------

Balance, April 30, 1997 3,462,354 - 5,848,819 (4,212,445) 1,636,374

Exercise of stock options 40,429 - 65,169 - 65,169

Net loss - - - (9,633,330) (9,633,330)
------------ ------------- ------------ ------------ ------------

Balance, April 30, 1998 3,502,783 $ - $ 5,913,988 $(13,845,775) $ (7,931,787)
============ ============= ============ ============ ============
</TABLE>

The accompanying notes are an integral part of this statement.

F-4

<PAGE>

Group Long Distance, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended April 30,

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (9,633,330) $ (4,132,722)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 2,369,410 4,495,609
Provision for bad debts 2,043,301 1,351,992
Gain on sale of investments (13,418,926) -
Changes in assets and liabilities
Increase in accounts receivable (7,028,744) (3,343,436)
Decrease in notes receivable 32,261 149,789
Decrease (increase) in deferred tax asset 649,900 (502,000)
Decrease (increase) in prepaid expenses and other
current assets 366,845 (440,695)
Increase in accounts payable 11,261,679 4,504,053
(Decrease) increase in accrued expenses and other liabilities (158,140) 565,601
------------ ------------
Net cash (used in) provided by operating activities (13,515,744) 2,648,191
------------ ------------

Cash flows from investing activities
Acquisitions of property and equipment (23,436) (185,807)
Acquisitions of customer bases - (5,324,445)
Decrease in other assets 37,236 51,917
Purchase of investments (5,495,760) -
Proceeds from sale of investments 26,616,720 -
------------ ------------
Net cash provided by (used in) investing activities 21,134,760 (5,458,335)
------------ ------------

Cash flows from financing activities
Net borrowings (payments) under line of credit agreement 87,044 (47,920)
Proceeds from loan originations - 6,405,335
Principal repayments of long-term debt (9,444,813) (5,543,947)
Proceeds from the sale of common stock 65,169 5,047,867
Offering costs incurred - (1,152,412)
------------ ------------
Net cash (used in) provided by financing activities (9,292,600) 4,708,923
------------ ------------

Net (decrease) increase in cash (1,673,584) 1,898,779

Cash at beginning of year 1,977,546 78,767
------------ ------------

Cash at end of year $ 303,962 $ 1,977,546
============ ============

Noncash investing and financing activity:
The Company acquired a customer base partially with common stock with a
value of $1,085,000
The Company acquired Eastern Telecommunications Incorporated with two $3.5
million notes and the assumption of approximately $1.2 million of
liabilities
</TABLE>

The accompanying notes are an integral part of these statements.

F-5

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

April 30, 1998 and 1997

NOTE A - OPERATIONS OF THE COMPANY

The Company is a non-facilities based reseller of long distance
telecommunication services. The Company utilizes service contracts to
provide its customers with switched, dedicated and private line services
through various long distance telecommunications networks such as Tel-Save,
Inc.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.

Principles of Consolidation

The financial statements at April 30, 1998 include the consolidated results
of the Company and its wholly-owned subsidiaries. All intercompany balances
have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.

Property and Equipment

Additions and major renewals to property and equipment are recorded at
cost. The Company provides for depreciation using the straight-line method
over an estimated useful life of five years for office equipment, furniture
and fixtures and leasehold improvements. Total accumulated depreciation was
$273,736 and $120,114 at April 30, 1998 and 1997, respectively.

Customer Acquisition Costs

Customer acquisition costs represent the cost of purchased customer
accounts which, historically, were generally amortized over five years
utilizing an accelerated method. The Company's amortization method and life
are based on estimated attrition rates and attempt to match these costs
with the corresponding revenues. Accumulated amortization was $6,670,259
and $4,539,744 at April 30, 1998 and 1997, respectively.

(continued)

F-6

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Customer Acquisition Costs - Continued

In December 1996, as a result of higher than expected customer attrition,
the Company accelerated the amortization of the acquisition costs of the
AIT customer base. The change resulted in $2,333,200 of additional
amortization expense for the year ended April 30, 1997 based upon the new
first year amortization rate of 75% compared to the estimated rate of 30%
which the Company was previously using. The Company amortized the remaining
balance using 15% in year 2 and 10% in year 3. The amortization expense for
the year ended April 30, 1998 was $1,131,200. The higher than expected
attrition resulted from delays in implementing the Company's service and
retention program which relied, in part, on Tel-Save's installation of its
new AT&T (now Lucent Technologies, Inc.) digital switching equipment.
Additionally, increasingly competitive conditions in the industry have
affected the attrition rate.

On an ongoing basis, management reviews the valuation and amortization of
customer acquisition costs. The Company reviews customer attrition rates
for all customer bases to determine that no impairment has occurred.

Prepaid Expenses and Other Current Assets

Certain other current assets, which are in the form of marketing advances
paid to telemarketers to obtain new customers, are being expensed 50% in
the year of the advance and 50% in the subsequent year. This period
approximates the time in which the commissions earned on the new revenues
equate to the advances paid.

In the fourth quarter of fiscal 1997, the Company expensed approximately
$278,000 of marketing advances that are subject to the Nortel and Accutel
lawsuit (see Note I).

Employee Benefit Plan

The Company adopted the Group Long Distance Inc. Retirement Savings and
401(k) Plan (the "Plan") effective January 1, 1997. Participation in the
Plan is offered to eligible employees of the Company. Generally, all
employees of the Company who are 21 years of age and who have completed
three months of service are eligible for participation in the Plan. The
Plan is a defined contribution plan which allows participants to make
voluntary salary deferral contributions of between 1% and 15% of their
compensation up to a maximum amount as statutorily determined. The Company
made matching contributions of 50% of the first 6% of the participant's
contribution of $16,400 and $400 for the year ended April 30, 1998 and
1997, respectively.

(continued)

F-7

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

April 30, 1998 and 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income Taxes

Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different
than such items are recognized for income tax purposes. The Company
accounts for deferred taxes utilizing the liability method, which applies
the enacted statutory rates in effect at the balance sheet date to
differences between the book and tax basis of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect
changes in tax laws.

Loss Per Share

Basic earnings per common share are based on the weighted average number of
common shares outstanding. Diluted earnings per common share are based on
the assumption that all dilutive potential common shares and dilutive stock
options were converted at the beginning of the year. The computations
assume the elimination of interest expense (net of tax) on the debentures.
(The total number of such weighted average shares was 3,487,922 and
2,327,084 for the years ended April 30, 1998 and 1997, respectively. Stock
options and warrants are considered common stock equivalents unless their
inclusion would be antidilutive.

The following table illustrates the reconciliation of the loss and weighted
average number of shares of the basic and diluted earnings per share
computations:

<TABLE>
<CAPTION>
Year Ended April 30, 1998 Year Ended April 30, 1997
---------------------------------------- ----------------------------------------
Weighted Weighted
Average Per Share Average Per Share
Net Loss Shares Amount Net Loss Shares Amount
----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(9,633,330) - $ - $(4,132,722) $

Net loss per
share - basic (9,633,330) 3,487,922 (2.76) (4,132,722) 2,327,084 (1.78)
</TABLE>

Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(continued)

F-8

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of estimated fair
values of financial instruments. These estimated fair values are to be
disclosed whether or not they are recognized in the balance sheet, provided
it is practical to estimate such values. The Company estimates that the
fair value of its financial instruments approximates the carrying value of
its financial instruments at April 30, 1998 and 1997.

Stock Options

Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In October 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation," which
require additional proforma disclosures for companies, such as Group Long
Distance, Inc. that will continue to account for employee stock options
under the intrinsic value method specified in APB 25 (see Note K).

Reclassifications

Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.

NOTE C - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). This pronouncement becomes effective for fiscal years beginning
after December 15, 1997. SFAS 130 will require entities to report
"comprehensive income" which will be divided into two components, "net
income" and "comprehensive income".

(continued)

F-9

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE C - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT - Continued

FASB Statement 131, Disclosures about Segments of an Enterprise and Related
Information, applies only to publicly held business entities. The principal
changes from current practice for reporting segment information under SFAS
14, Financial Reporting for Segments of an Enterprise, include (a) use of a
management approach as a basis for segmentation, rather than an industry
approach, (b) more detailed disclosure requirements, including disclosure
of significant factors used to determine reportable segments, and (c) a
requirement to disclose segment information in interim financial
statements.

The Company believes that these statements will have no impact on the
Company's results of operations or financial position upon adoption.

NOTE D - CONCENTRATIONS OF RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist of accounts and notes receivable
which are due from small and medium size businesses. The Company
continually evaluates the creditworthiness of its customers; however, it
generally does not require collateral.

The majority of the Company's revenues are derived from calls routed
through Tel-Save, Inc.'s ("Tel-Save") network switching equipment utilizing
AT&T's transmission facilities. The use of the equipment and transmission
facilities are afforded through the Partition Agreement Group Long Distance
has with Tel-Save. Tel-Save may suspend services or terminate the agreement
upon the occurrence of any event of default by Group Long Distance. Such
revenues represented 96% and 74% of total revenues in fiscal 1998 and 1997,
respectively (see Note O).

NOTE E - LINE OF CREDIT

In August 1996, the Company entered into an agreement with a financial
institution which, as amended as of February 1997, provides for a line of
credit of up to $150,000, bearing interest at the prime rate plus 1% and
which matures on September 5, 1998. The line of credit is collateralized by
all the Company's equipment, machinery, furniture and intangibles and is
personally guaranteed by the Company's president.

F-10

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE F - LONG-TERM DEBT

Long-term debt is comprised of the following at April 30:

<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Tel-Save interest bearing loan at 6.5%. The loan is payable in equal
monthly installments of $125,000 plus interest beginning after
September 1997. $ - $2,032,851

Promissory note payable to a financial institution. The note is payable
in equal monthly installments of $2,083 until May 2, 1998. - 27,083

Unsecured promissory note payable to a Corporation in connection with
an acquisition. The note is payable in equal monthly installments of
$10,000 and was subsequently paid in full in May 1998. 7,394 83,898

Unsecured non-interest bearing settlement payable to AT&T. The Company
has been and continues to be in default under this obligation and has
been sued by AT&T (see Note I). In June 1998, the parties executed mutual
releases and the action was dismissed. 547,500 547,500

Unsecured promissory note payable to a director of the Company and an
unaffiliated third party. The note, which matures on September 25,
1999, is due in 48 equal monthly payments of $2,600 and bears interest
at prime plus 2% (see Note J). 41,988 66,968

Unsecured 11% interest bearing note which is payable in monthly
installments of $1,000 and matures in fiscal
1998. - 12,973
</TABLE>

(continued)

F-11

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE F - LONG-TERM DEBT - Continued

<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Unsecured interest bearing note at 16% relating to the WorldCom
accounts payable. Payable in equal monthly installments of $50,000
plus interest. $ 712,280 $ -
---------- ----------
1,309,162 2,771,273

Less current portion of long-term debt 1,196,882 1,698,966
---------- ----------
$ 112,280 $1,072,307
========== ==========
</TABLE>

Principal maturities of long-term debt at April 30, 1998 are as follows:

Year Ending April 30,

1999 $1,196,882
2000 112,280
----------
$1,309,162
==========

NOTE G - INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using statutory federal income tax rates in effect for the
year.

The provision (benefit) for income taxes consists of the following at April
30,:

1998 1997
--------- ---------

Current $ - $ -
Deferred 649,900 (502,000)
--------- ---------
$ 649,900 $(502,000)
========= =========

(continued)

F-12
<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE G - INCOME TAXES - Continued

The benefit for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal income tax rates to
pretax income as a result of the following differences at April 30, 1998
and 1997:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Benefit for income taxes, at 34% $(3,054,400) $(1,575,800)
Increase (decrease) in tax resulting from:
Change in valuation allowance 886,900 1,263,100
Additional tax on gain on sale of stock 2,837,400 -
Nondeductible items 3,000 3,000
Alternative minimum tax credits -
Effect of graduated tax rates -
State taxes, net of federal tax benefit (23,000) (168,100)
Other (24,200)
----------- -----------

$ 649,900 $ (502,000)
=========== ===========
</TABLE>

For the year ended April 30, 1998, there is a $2.8 million difference
in the tax provision at statutory rates over the actual tax provision which is
due to a permanent difference relating to the higher book basis than tax basis
in the Tel-Save warrants which were exercised and the stock sold in fiscal 1998.

Deferred tax assets are comprised of the following at April 30, 1998
and 1997.

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 177,600 $ 233,300
Customer acquisition costs 1,747,400 1,425,500
Net operating loss 262,000 152,500
Marketing advances - 149,700
Accrued bonus - -
---------- ----------
Deferred tax assets 2,187,000 1,961,000
Depreciation - (11,000)
---------- ----------
Net deferred tax assets 2,187,000 1,950,000
Less valuation allowance 2,187,000 1,300,100
---------- ----------

$ - $ 649,900
========== ==========
</TABLE>

The valuation allowance increased $886,900 in 1998. This was primarily the
result of the difference in customer acquisition cost amortization between
tax and financial reporting.

F-13

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE H - LEASES

The Company leases two office facilities under noncancellable operating
leases which expire at various dates through March 2000. The leases contain
renewal options and provide for rental increases by either index or
renegotiation. Further, some of the leases require payment of common area
maintenance and utilities. Rent expense for the years ended April 30, 1998
and 1997 totaled approximately $108,000 and $113,700.

Approximate future minimum lease payments applicable to noncancellable
operating leases are as follows:

Year Ending April 30,
---------------------
1999 $ 108,000
2000 93,000
---------
$ 201,000
=========
NOTE I - COMMITMENTS AND CONTINGENCIES

Certain of the Company's network service agreements contain provisions for
guaranteed monthly volume and network usage which is the basis for
determining volume discounts and other special billing features. For the
fiscal years ended April 30, 1998 and 1997 such commitments aggregated
approximately $36,000,000 and $8,600,000, respectively. Failure to satisfy
volume purchase commitment or price increases by carriers could materially
adversely affect the Company's future operating results. The Company
periodically renegotiates its volume commitments with its carriers.

In February 1997, the Company and the Company's President and Chief
Executive Officer entered into a two-year employment agreement providing a
base salary of $150,000 and a bonus based on certain earnings criteria. In
addition, he was granted options to purchase 250,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on
the date of grant of $1.375.

(continued)

F-14

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE I - COMMITMENTS AND CONTINGENCIES - Continued

The Company is a defendant in a civil action styled Group Discount Dialing
versus Group Long Distance, Inc. Case No. CV-96-025165 S, pending in
Connecticut state court. In this action brought in October 1997, Group
Discount Dialing seeks approximately $500,000 as damages. On October 7,
1997, a default for failure to plead was entered against the Company. The
Company filed a motion to open default on November 5, 1997, which was never
acted upon by the court. On December 12, 1997, the case was dismissed due
to the failure by Group Discount Dialing to take the steps necessary to
secure a judgement, but was reopened on January 22, 1998. Group Discount
Dialing subsequently filed a motion for hearing on damages and in response
to such motion, the Company filed various motions, including a motion for
the extension of time to respond to plaintiff's interrogatories. In
addition, the company filed a counterclaim asserting breach of contract by
Group Discount Dialing. The Court has not yet ruled on such motions. The
Company has also filed a counter suit in a civil action styled Group Long
Distance, Inc. v. Sharon N. Kasek d/b/a/ Group Discount Dialing Case No.
94-0472 CA 5, which is pending in Florida state court. The Company is
seeking $50,000 in damages for breach of contract.

The Company owes AT&T $547,500 under a previously executed settlement
agreement relating to certain billing disputes (see Note F). The Company is
a defendant in a civil action styled AT&T Corp. v. Group Long Distance,
Inc., Civil Action No. 97-2226 (NAP), pending in the United States District
Court for the District of New Jersey. In this action brought in April 1997,
AT&T seeks $612,324 and attorneys' fees as damages for breach of a
settlement agreement entered into between AT&T and the Company in 1993.
AT&T also seeks to recover this $612,324 under a separate claim for unpaid
tariff charges. The Company has answered the complaint and asserted certain
counterclaims. In June 1998, the parties executed mutual releases and
the action was dismissed.

In 1996, Nortel, Inc. ("Nortel") and Accutel Communications, Inc.
("Accutel") filed combined suits against the Company in a civil action
styled Nortel, Inc. and Accutel Communications, Inc. v. Group Long
Distance, Inc., No. CASE-96-014773 (07) (Broward County, Florida), alleging
causes of action for anticipatory breach of contract and breach of contract
arising from the termination by the Company of service under a service
contract and independent marketing distributor agreement with each party.
The Company terminated the telephone services of Nortel and terminated the
distributor relationship with Accutel for breaches of contract, including
the failure to comply anticipatorily and wrongfully terminated their
contracts, and Accutel claims that the Company owes it $89,664 in unpaid
commissions. Nortel sued for an injunction against the Company's
termination of telephone services and was awarded an ex-parte temporary
injunction, but at a hearing for dissolution of the order the Court
immediately ordered the dissolution of the prior injunction and ordered all
parties to attend mediation. In April 1998, the suit was settled and the
parties mutually waived all claims against each other and executed general
mutual releases.

Pursuant to the Plan and Agreement of Merger dated November 14, 1995 (the
"Plan"), Group Long Distance, Inc., a Florida corporation ("GLD"), was
merged (the "Merger") into Second ITC and Second ITC changed its name to
Group Long Distance, Inc. The Plan stated that the shareholders of GLD
would own 94% of the outstanding shares of Second ITC and the existing
shareholders of Second ITC would own the remaining 6% of the shares
outstanding. Because the founders of GLD held certain founding shares (the
"Founders' Shares") in Second ITC, there was a partial dilution of the
interests received by the shareholders of GLD in the Merger from 94% to
87.5% (the "Dilution").

(continued)

F-15

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE I - COMMITMENTS AND CONTINGENCIES - Continued

While the Merger was approved by the Board of Directors and a majority of
the shareholders the Company that were shareholders of GLD (the
predecessor) at the time of the Merger and a majority of the then current
shareholders of the Company, shareholders affected by the Dilution may have
a cause of action against the Company. There can be no assurance that a
shareholder may not seek legal remedy against the Company or the individual
founders, notwithstanding the foregoing approvals. In the event any such
action is brought, the Company's results of operations of cash flow for a
particular quarterly or annual period could be materially affected by
protracted litigation or an unfavorable outcome.

In connection with the foregoing matter, pursuant to an indemnification
agreement, the Company and each of the founders, jointly and severally,
have agreed to indemnify the underwriters to the offering (see Note M), and
each of the founders has agreed to indemnify the Company, for any and all
losses, claims, damages, expenses or liabilities (including reasonable
legal fees and expenses) as a result of any claim arising out of or based
upon the failure to disclose the issuance of the shares to the founders and
(ii) in the event that as a result of any such claim, the Company is
required to issue additional shares of Common Stock, the founders have
agreed to deliver an equal number of shares of Common Stock to the Company
for cancellation.

NOTE J - RELATED PARTY TRANSACTIONS

The Company had entered into an agreement with a related party which
provided for monthly royalty payments based upon a sliding scale percentage
of the Company's monthly net revenues. Royalties paid for the year ended
April 30, 1997 totaled approximately $103,700. This agreement terminated at
the closing of the initial public offering of the Company's common stock
and therefore no royalties were paid for the year ended April 30, 1998.

In March 1997, the Company completed its public offering of the Company's
common stock and entered into a settlement agreement with the related party
to settle amounts owed by the Company. The agreements called for the
Company to pay $85,450 which is paid in full as of April 30, 1998.

F-16

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE K - STOCK OPTIONS

The following option information has been adjusted to reflect the change
required by the merger of Second ITC Corporation in November 1995. In
November 1993, as an inducement to loan the Company $190,000, the Company
issued stock options to purchase 90,505 shares of the Company's common
stock for $1.05 per share. Options to purchase 80,978 shares of the
Company's common stock have been exercised as of April 30, 1996. The
remaining options expired in November 1997.

The Company's 1996 Employees' Stock Option Plan provides for granting of
options of not more than 600,000 shares of common stock. A Committee of the
Board of Directors has the sole discretion to determine to whom options
will be granted and the terms and conditions of such options.

Prior to April 30, 1996, the Company accounted for such options under APB
Opinion 25 and related Interpretations. Commencing May 1, 1996, the Company
accounts for non-qualified options issued to non-employees, under SFAS 123,
Accounting for Stock Based Compensation.

The exercise price of all options granted by the Company equals the market
price at the date of grant. No compensation expense has been recognized.

Had compensation cost for the Employees' Stock Option Plan's options issued
to employees been determined based on the fair value of the options at the
grant dates consistent with the method of SFAS 123, the Company's net loss
and loss per share would have been changed to the pro forma amounts
indicated below.

1998 1997
------------ -----------
Net loss
As reported $ (9,633,330) $(4,132,722)
Pro forma $(10,067,283) $(4,624,587)

Basic loss per share
As reported $ (2.76) $ (1.78)
Pro forma $ (2.87) $ (1.98)

The above pro forma disclosures may not be representative of the effects on
reported net loss for future years as options vest over several years and
the Company may continue to grant options to employees.

(continued)

F-17

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE K - STOCK OPTIONS - Continued

The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: dividend yield
of 0.0 percent for all years; expected volatility of 67.30 and 64.46
percent; risk-free interest rate of 6.57 and 6.11 percent; and expected
holding periods ranging up to 5 years.

A summary of the status of the Company's fixed stock options as of April
30, 1998 and 1997, and changes during the years ending on those dates is as
follows:

<TABLE>
<CAPTION>
1998 1997
----------------------------- ---------------------------
Weighted - Weighted -
Average Average
Shares Exercise Price Shares Exercise Price
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 602,716 $ 4.70 76,216 $ 2.23
Granted 32,000 4.46 526,500 5.06
Exercised 40,429 1.57 - -
Expired 38,080 2.08 - -
Forfeited 106,500 5.06 - -
-------- --------
Outstanding at end of year 449,707 5.02 602,716 4.70
======== ========

Options exercisable at end
of year 391,832 277,883
Weighted-average fair value
of options granted during
the year $ 2.32 $ 3.02
</TABLE>

The following information applies to options outstanding at April 30, 1998.

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted -
Average Weighted - Weighted -
Range of Remaining Average Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
--------------- ------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$3.8750-$5.0625 449,707 3.77 $ 5.02 391,832 $ 5.02
</TABLE>

F-18

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE L - SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
Cash paid during the year for interest $ 160,000 $ 114,000
========= ===========

Cash paid during the year for taxes $ - $ 83,000
========= ===========

Property and equipment acquired
under capital lease obligations $ - $ 73,905
========= ===========

Issuance of 155,000 shares in connection with
acquisition of AIT (see Note N) $ - $ 1,085,000
========= ===========
</TABLE>

NOTE M - EQUITY

In March 1997, the Company completed an underwritten public offering of its
common stock and warrants. The Company sold 1,250,000 shares and warrants
to purchase 1,437,500 shares at an exercise price of $5.40 per share (the
"Redeemable Warrants"). The Company realized proceeds of $3,895,455, net of
underwriter's discount and out of pocket expenses. In connection with the
offering, the underwriter was granted warrants to purchase 125,000 shares
of common stock at $4.95 per share. The underwriter also was granted the
right to purchase 125,000 redeemable warrants at $.11 per redeemable
warrant all of which are exercisable at any time within the three years
ending March 24, 2000. None of the warrants issued to the underwriter have
been exercised, and none of the redeemable warrants have been exercised.

Warrant Repurchase

In connection with the financing of the AIT acquisition, the Company issued
warrants to Tel-Save to purchase 300,000 shares of common stock of the
Company at $5.75 per share and 50,000 shares at $5.00 per share. In June
1997, these warrants were returned to the Company from Tel-Save for no
consideration (see Note N).

F-19

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE N - ACQUISITIONS

In May 1996, the Company purchased, for $207,000, the stock and assets,
including the customer base, of Gulf Communications Service, Inc. ("Gulf")
in consideration of $25,000 in cash and the assumption of a promissory note
in the principal amount of $182,000. Gulf has switching equipment which
allows it to act as an international call back and call through provider.
The promissory note of $182,000 is payable monthly installments of $10,000
through February 1, 1998.

In July 1996, the Company entered into a Purchase Agreement and Plan of
Exchange with Adventures in Telecom, Inc. ("AIT") whereby the Company
purchased 100% of the common stock of AIT. AIT is a non-facilities based
reseller of long distance communication services. The purchase price was
comprised of $5,271,230 in cash and 200,000 restricted shares of common
stock of the Company. In December 1996, the Company agreed with the former
shareholders of AIT to cancel 45,000 of the 50,000 shares that were subject
to the holdback provisions, in settlement of certain claims by the Company
against the AIT shareholders.

The Company in July 1996, to finance the AIT acquisition, entered into an
agreement with Tel-Save pursuant to which it borrowed an aggregate of
$5,521,230. This loan bears interest at 6.5% per annum. The loan agreement
was amended in February 1997 to provide for the repayment of the loan in
monthly payments of $125,000 plus interest beginning after September 1997.
Included in the face of the note are amounts due to the lending corporation
at April 30, 1996 that aggregate $250,000. In 1996, the $250,000 was
reflected in accounts payable. As of April 30, 1998, the note was paid in
full.

To induce Tel-Save to provide the financing needed to purchase AIT, the
Company issued a warrant to purchase 300,000 shares of common stock of the
Company at $5.75 per share and a warrant to purchase 50,000 shares of
common stock of the Company at $5.00 per share. Both warrants were
exercisable through July 2001 and subject to certain registration rights.
In June 1997, these warrants were returned to the Company from Tel-Save for
no consideration.

(continued)

F-20

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE N - ACQUISITIONS - Continued

In January 1997, the Company purchased from Great Lakes Telecommunications
Corp. ("Great Lakes") (i) a customer base consisting approximately 7,000
customers that were subject to an agreement between Great Lakes and
Tel-Save and (ii) a warrant to purchase 200,000 shares of common stock of
Tel-Save in consideration of $1,200,000 in cash. In connection with such
acquisition, the Company borrowed $1,200,000 from Tel-Save. In January
1997, Tel-Save repurchased the Tel-Save Warrants from the Company in
consideration of $1,800,000 and credited the Company with such amount
($1,200,000 toward the Great Lakes acquisition and $600,000 toward the
Company's outstanding principal balance under the Acquisition Loan). The
$600,000 reduction of debt has been accounted for as a contribution to
paid-in-capital by Tel-Save. No value has been assigned to the customer
base acquired from Great Lakes.

ETI Acquisition

On August 11, 1997, the Company acquired all the issued and outstanding
stock of Eastern Telecommunications Incorporated ("ETI"), a New York-based
long-distance reseller. The purchase price aggregated $8.313 million and
consisted of two $3.5 million notes (the "ETI Notes") and the assumption of
approximately $1.2 million of certain of ETI's liabilities and the payment
of closing costs in the amount of $113,000. ETI's assets consist of two
warrants to purchase 1,347,000 shares of the common stock of Tel-Save (the
"ETI Tel-Save Warrants"), a customer base of 7,000 and receivables. A
substantial portion of ETI's revenues are derived through Tel-Save. On
August 11, 1997, the Company exercised one of the ETI Tel-Save Warrants to
purchase 600,000 common stock shares of Tel-Save.

The ETI Notes bore interest at 10% per annum payable monthly and were due
on August 11, 1998, although the net proceeds from the sale of the
securities underlying the Tel-Save Warrants were used to prepay the
principal of the ETI Notes. In October 1997, the Company exercised the
remaining Tel-Save warrants and sold the common stock for approximately $27
million with a gain on sale of $13.4 million. The proceeds were used to
repay the two ETI $3.5 million notes, the cost of exercising the warrants
and certain accounts payable.

The ETI Agreement also provided that the Company would indemnify the
selling shareholders from and against any and all losses arising from the
transaction and released them from certain liabilities to ETI.

(continued)

F-21

<PAGE>

Group Long Distance, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

April 30, 1998 and 1997

NOTE N - ACQUISITIONS - Continued

ETI Acquisition - Continued

Of the $8.313 million acquisition cost of ETI, $7.713 million has been
allocated to the ETI Tel-Save Warrants and the balance of $600,000 has been
allocated to the customer base. No value was assigned to the receivables
purchased due to the uncertainty surrounding their collectibility.

NOTE O - RISKS AND UNCERTAINTIES

The Company's operations are based upon agreements with a limited number of
long-distance carriers who provide access to phone lines and transmission
facilities. The carriers also provide call data records and bill the
Company's customers on the Company's behalf. The Company is dependent upon
such carriers for such services, and there is a reasonable possibility that
there could be equipment failures or other service interruptions that could
materially affect the Company. Such delays could result in postponed or
possibly lost sales, which could adversely affect operating results.

NOTE P - UNUSUAL AND NON-RECURRING ITEM

During fiscal 1997 the Company experienced unauthorized access to its
call-back switching services by unauthorized usage of its Direct Inward
Dialing (DID) circuits. This unauthorized usage resulted in no charge to
income in fiscal 1998 and a charge of $460,720 to income in fiscal 1997.
The DID circuits have been disconnected and no further unauthorized usage
is possible. The Company does not use call-back switching services and
therefore considered this charge a non-recurring event. In July 1997, the
Company discontinued its international call-back switching services.

NOTE Q - SUBSEQUENT EVENT

On July 2, 1998, the Company's board of directors amended the exercise
price of options under the Company's 1996 Stock Option Plan, to purchase
434,000 shares of common stock from $5.0625 to $1.375.

F-22

<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information Extracted from Goup Long
Distrance, Inc. Financial Statements Ended April 30, 1998 and is qualified in
its entirety by reference to such Financial Statements.
</LEGEND>
<CIK> 0001004570
<NAME> Group Long Distance, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 303,962
<SECURITIES> 0
<RECEIVABLES> 9,050,598
<ALLOWANCES> (572,000)
<INVENTORY> 0
<CURRENT-ASSETS> 8,881,270
<PP&E> 368,507
<DEPRECIATION> (273,736)
<TOTAL-ASSETS> 9,913,525
<CURRENT-LIABILITIES> 17,733,032
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (7,931,787)
<TOTAL-LIABILITY-AND-EQUITY> 9,913,525
<SALES> 54,340,938
<TOTAL-REVENUES> 67,759,864
<CGS> 38,118,173
<TOTAL-COSTS> 38,118,173
<OTHER-EXPENSES> 32,651,158
<LOSS-PROVISION> 5,633,630
<INTEREST-EXPENSE> 340,333
<INCOME-PRETAX> (8,983,430)
<INCOME-TAX> 649,000
<INCOME-CONTINUING> (9,633,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,633,330)
<EPS-PRIMARY> (2.76)
<EPS-DILUTED> (2.76)

</TABLE>