SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the Quarterly period ended July 31, 1999
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
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 Identification No.)
Incorporation or Organization)
6600 North Andrews Avenue, Suite 140,
Fort Lauderdale, FL 33309
(Address of Principal Executive Offices)
(954) 771-9696
(Issuer's Telephone Number, Including Area Code)
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 the past 90 days. Yes |_| No
|X|
The number of shares of Common Stock, no par value, outstanding as of
March 3, 2000 was 3,500,402.
The number of Redeemable Warrants outstanding as of March 3, 2000 was
1,437,500.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1999 (unaudited) and April 30, 1999............. 1
Unaudited Consolidated Statements of Operations for the Three Months Ended
July 31, 1999 and 1998.................................................................... 2
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended
July 31, 1999 and 1998..................................................................... 3
Notes to Consolidated Financial Statements................................................. 4
Item 2. Management's Discussion and Analysis....................................................... 6
PART II. OTHER INFORMATION
Item 6. Exhibits, List and Reports on Form 8-K..................................................... 11
SIGNATURES........................................................................................................ 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1999 (Unaudited) and April 30, 1999
July 31, April 30,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash.......................................................................... $ 1,238,990 $ 502,946
Accounts receivable less allowance for doubtful accounts of $429,000 and
$388,000 at July 31, 1999 and April 30, 1999, respectively................. 769,264 1,291,461
Carrier receivable............................................................ 512,078 --
Prepaid expenses and other current assets..................................... 6,155 6,155
------------- ---------------
Total current assets....................................................... 2,526,487 1,800,562
------------- ---------------
Property and equipment, net...................................................... 5,068 13,168
------------- ---------------
Total assets............................................................... $ 2,531,555 $ 1,813,730
============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Volume shortfall charge payable, net.......................................... -- 407,738
Accounts payable.............................................................. 476,715 476,084
Deferred revenue.............................................................. 3,012,244 3,012,244
Income taxes payable.......................................................... 2,269,900 1,769,900
Accrued expenses and other liabilities........................................ 181,500 511,953
------------- ---------------
Total liabilities.......................................................... 5,940,359 6,177,919
------------- ---------------
Stockholders' deficit
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; 3,500,402 shares
issued and outstanding as of July 31, 1999 and April 30, 1999,
respectively.................................................................. -- --
Additional paid-in capital....................................................... 5,913,988 5,913,988
Accumulated deficit.............................................................. (9,322,792) (10,278,177)
------------- ---------------
Total stockholders' deficit................................................ (3,408,804) (4,364,189)
------------- ---------------
Total liabilities and stockholders' deficit................................ $ 2,531,555 $ 1,813,730
============= ===============
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The accompanying notes are an integral part of these statements.
1
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three months ended July 31, 1999 and 1998
Three Months Ended
July 31,
--------
1999 1998
---- ----
<S> <C> <C>
Sales............................................................................... $ 3,488,311 $ 8,439,363
Cost of sales....................................................................... 1,799,994 5,670,291
------------ ------------
Gross profit..................................................................... 1,688,317 2,769,072
Selling, general and administrative expenses........................................ 229,230 922,760
Marketing expenses.................................................................. -- 3,000
Depreciation and amortization....................................................... 8,100 299,007
------------ ------------
Income from operations........................................................... 1,450,987 1,544,305
Interest expense (Income), net...................................................... (4,398) 3,917
------------ ------------
Income before income taxes....................................................... 1,455,385 1,540,388
Income tax.......................................................................... 500,000 --
------------ ------------
Net income....................................................................... $ 955,385 $ 1,540,388
============ ============
Net income per common share--basic................................................... $ 0.27 $ 0.44
============ ============
Net income per common share--diluted................................................. $ 0.27 $ 0.44
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three months ended July 31, 1999 and 1998
Three Months Ended
July 31,
1999 1998
---- ----
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Cash flows from operating activities
Net income .................................................... $ 955,385 $ 1,540,388
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization ................................. 8,100 299,007
Provision for bad debts ....................................... 179,925 530,434
Changes in assets and liabilities
Decrease in accounts receivable ............................. 342,272 4,420,672
Increase in carrier receivable .............................. (512,078) --
Decrease in prepaid expenses and other current assets ....... -- 53,183
Decrease in volume shortfall charge payable, net ............ (407,738) --
(Decrease) increase in accounts payable ..................... 631 (6,333,351)
(Decrease) increase in accrued expenses and other liabilities (330,453) 61,187
Increase in income taxes payable ............................ 500,000 --
----------- -----------
Net cash provided by operating activities ................ 736,044 571,520
----------- -----------
Cash flows from financing activities
Principal repayments of long-term debt ........................ -- (653,599)
----------- -----------
Net cash used in financing activities .................... -- (653,599)
----------- -----------
Net increase (decrease) in cash ..................................... 736,044 (82,079)
Cash at beginning of year ........................................... 502,946 303,962
----------- -----------
Cash at end of period ............................................... $ 1,238,990 $ 221,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three months ended July 31, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending April
30, 2000.
The balance sheet at April 30, 1999 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited financial
statements and footnotes thereto included in the Form 10-KSB filed by the
Company for the fiscal year ended April 30, 1999.
NOTE B--FORMATION AND OPERATIONS OF 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. These subsidiaries include Eastern
Telecommunications Incorporated ("ETI"), Adventures-in-Telecom ("AIT") and Gulf
Communications Services, Inc ("GULF").
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 TALK to
purchase long distance telephone service at discounted bulk rates. The Company
then resells these discounted services to customers, at rates 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.
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
NOTE C--SUBSEQUENT EVENTS
Effective December 21, 1999, the Company appointed Mr. Jack Kanfer as a
Director of the Company. Since 1987, Mr. Kanfer has been CEO and Director of
Telecom Consulting Group and B&D Telecom Corp., both privately held
telecommunication companies located in Pompano Beach, Florida. From 1976 to
1987, Mr. Kanfer was a consultant specializing in turnarounds, mergers and
acquisitions. Prior to 1976, Mr. Kanfer was a Senior Vice President of SCA
Services, a New York Stock Exchange listed company that was acquired by Waste
Management.
On December 8th, 1999, based on a settlement agreement ("TALK Agreement")
with TALK, the Company agreed to pay $1.1 million to resolve the shortfall
charge. As part of the TALK Agreement, TALK agreed to release approximately $2.9
million dollars of cash to the Company that was held under a lockbox
arrangement, and the release of all receivables that were secured pursuant to a
Partition Agreement, and that all future minimum monthly volume commitments were
waived by TALK. In addition, the TALK Agreement provides for an extension of the
current carrier agreement until the later of August 31, 2002, or the date that
all obligations to TALK have been satisfied in full, and for the exchange of
mutual releases.
On October 13, 1999, Mr. Glenn Koach, Executive Vice President of the
Company was appointed as President assuming the responsibilities of Mr. Gerald
M. Dunne, Jr. who resigned as President, Chief Executive Officer, Chairman and a
Director of the Company and it subsidiaries. On August 1, 1999, Mr. Koach, a
former director of the Company had rejoined the Company as Executive
Vice-President and on September 11, 1999 had been named a director of the
Company, filling a void created by the resignation of Mr. Russo. In connection
with Mr. Dunne's resignation, the Company and Mr. Dunne entered into a
Separation Agreement (the "Separation Agreement") pursuant to which the Company
agreed to pay severance pay of $190,000. Mr. Dunne also receives health
insurance, coverage under the Company's Directors and Officers liability
insurance policy and a car allowance. As at March 3, 2000 the Company has paid
out $188,968 pursuant to the Separation Agreement.
On November 18, 1999, Mr. Sam D. Hitner was confirmed as Chief Financial
Officer of the Company by the Company's Board of Directors. Mr. Hitner had been
appointed Acting Chief Financial Officer of the Company on September 11, 1999,
following the resignation of Mr. Peter Russo as Chief Financial Officer and a
Director of the Company and each of its subsidiaries. The Company and Mr. Russo
entered into a Separation Agreement (the "Russo Separation Agreement") pursuant
to which the Company agreed to pay to Mr. Russo severance pay of $120,000,
$60,000 of which was paid on September 11, 1999 and $60,000 of which is payable
in $10,000 monthly payments thereafter from an escrow account established by the
Company in connection with the Russo Separation Agreement. As at March 3, 2000,
the Company had paid $120,000 pursuant to the Russo Separation Agreement. The
Company also entered into a Consulting Agreement with Torbay Management
Services, Inc., ("Torbay") a corporation controlled by Mr. Russo pursuant to
which Torbay provided consulting services to the Company. Torbay received a
monthly consulting fee of $6,000 for the four-month term of the agreement. In
addition, the Company purchased an errors and omissions liability policy in
connection with Torbay provision of service to the Company. As at March 3, 2000,
the Company had paid Torbay $24,000 in consulting fees. The Consulting Agreement
was not extended after the expiration of the initial four-month term.
5
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Item 2. Management's Discussion and Analysis
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.
This Report on Form 10-QSB 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. Some of these risks and factors are
identified herein and from time to time in the Company's filings with the SEC.
Readers are cautioned that forward-looking statements are not guarantees of
future performance and that the actual results may differ materially from those
suggested or projected in forward-looking statements. Accordingly, there can be
no assurance that the forward looking statements will occur, or that the results
will not vary significantly from those described in the forward-looking
statements.
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 TALK. The Company is
dependent on TALK and numerous regional and local telephone companies to provide
its services and products. The Company's revenues are currently solely derived
from calls routed through TALK.
The Company's prior agreements with TALK provided that the Company maintain
certain monthly revenues (as defined in the agreements) to the carrier for
services provided under the agreements during stated periods. Under these prior
agreements, the Company had an exposure for a monthly commitment for such
revenues of $3,000,000 (representing, in aggregate, $36,000,000 for the fiscal
year ended April 30, 1999 and $18,600,000 for the fiscal year ended April 30,
1998). Based on a settlement agreement ("TALK Agreement") with TALK on December
8, 1999, the Company agreed to pay $1.1 million to resolve the shortfall charge.
As part of the TALK Agreement, TALK agreed to release approximately $2.9 million
dollars of cash to the Company that was held under a lockbox arrangement, to
release all receivables that were secured pursuant to a Partition Agreement, and
to waive all future minimum monthly volume commitments. In addition, the TALK
Agreement provides for an extension of the current carrier agreement until the
later of August 31, 2002, or the date that all obligations to TALK have been
satisfied in full, and for the exchange of mutual releases.
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. As
6
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of April 30, 1999 the Company employed four full-time employees and at March 3,
2000, the Company employed three full-time employees.
The Company is no longer conducting and has no plans to conduct any
marketing campaigns to attract new customers, since the Company has determined
that it is currently unable to both procure new customers, and achieve positive
earnings after amortization of acquisition costs for these new customers. This
is due to the competitive advantage held by facilities based carriers and
Internet marketing enterprises. 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/WorldCom and
Sprint, dominate the industry and have the financial resources to enable them to
withstand substantial price competition which has continued to increase.
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 have improved
billing efficiencies, increased collections and assisted in lowering customer
attrition, which without this arrangement could have been significantly higher.
The Company's operating results are significantly affected by customer
attrition rates, particularly since the Company is no longer marketing its
services. 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. This is due to the competitive advantage
held by facilities based carriers and Internet marketing enterprises.
The Company continues to explore strategic opportunities, partnerships and
business combinations. Certain of these options could involve the Company
selling all or substantially all of its assets or capital stock.
7
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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:
<TABLE>
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Three Months Ended July 31,
1999 1998
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Sales.......................................................... 100% 100%
Cost of sales.................................................. 52 67
Gross profit................................................... 48 33
Selling, general and administrative expense.................... 7 11
Marketing expenses............................................. -- *
Depreciation and amortization expense.......................... * 4
Income from operations......................................... 42 18
Interest expense/income, net................................... * *
Income before income taxes..................................... 42 18
Income taxes................................................... 14 --
Net Income .................................................... 28 18
*Less than 1 percent
</TABLE>
Comparison of Fiscal Three months ended July 31, 1999 to Fiscal Three
months ended July 31, 1998
Sales. The Company's sales were $3,488,311 for the three months ended July
31, 1999, compared to $8,439,363 for the three months ended July 31, 1998, a
decrease of $4,951,052 or 59%. The decrease in sales, was a result of the
termination of the previous telemarketing campaign and normal attrition of the
customer base. Management believes attrition of customer base is being
experienced by other companies in the Industry that are positioned similarly to
the Company. The Company has determined that it is currently difficult to both
market to procure new customers and achieve positive earnings after amortization
of acquisition costs for these new customers. This is due to the competitive
advantage held by facilities based carriers and Internet marketing enterprises.
Because the Company is not marketing its products and services, the Company's
revenues are likely to continue to decline, although at a reduced rate. The
Company anticipates this trend to continue through the rest of the fiscal year
ending April 30, 2000, and thereafter.
Cost of Sales. Cost of sales were $1,799,994 for the three months ended
July 31, 1999, compared to $5,670,291 for the three months ended July 31, 1998,
a decrease of $3,870,297 or 68%. As a percentage of sales, cost of sales was 52%
and 67% for the three months ended July 31, 1999 and three months ended July 31,
1998, respectively. The decrease in cost of sales between comparative periods
was due to the decrease in revenues as a result of customer attrition. The
decrease in cost of sales as a percentage of sales in the current fiscal year is
primarily as a result of improved margins on, and a change in the mix of the
remaining customer base from the three months ended July 31, 1998.
Gross Profit. Gross profit was $1,688,317 for the three months ended July
31, 1999 compared to $2,769,072 for the three months ended July 31, 1998, a
decrease of $1,080,755 or 39%. As a percentage of sales, gross profit was 48%
and 33% for the three months ended July 31, 1999 and July 31, 1998,
respectively. The increase in gross profit percentages in three months ended
July 31, 1999 was due to improved margins on, and a change in the mix of the
remaining customer base from the three months ended July 31, 1998.
Selling, General and Administrative Expense. Selling, general and
administrative expenses ("SG&A") were $229,230 for the three months ended July
8
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31, 1999 compared to $922,760 for the three months ended July 31, 1998, a
decrease of $693,530 or 75%. . As a percentage of sales, SG&A for the three
months ended July 31, 1999 and 1998 was approximately 7% and 11%, respectively.
This decrease in SG&A was due to the reduced sales volumes, reduced bad debt
expense as a result of lower sales volumes and lower accounts receivable, and a
significant reduction in operating expenses as compared to the three months
ended July 31, 1998. This decrease in SG&A percentages for the three months
ended July 31, 1999, was due to a significant reduction in operating expenses as
a result of lower sales volumes as compared to the three months ended July 31,
1998. Subsequent to the period covered by this FORM 10-QSB, Messrs. Dunne and
Russo (former President and Chief Executive Officer and former Chief Financial
Officer, respectively) terminated their employment and entered into separation
agreements with the Company. An aggregate of $310,000 will be accrued to account
for these terminations in the Company's quarter ending October 31, 1999.
Marketing Expenses. There were no marketing expenses for the three months
ended July 31, 1999. Marketing expenses were $3,000 for the three months ended
July 31, 1998. During the three months ended July 31, 1998, the Company entered
into a new marketing campaign to sign up customers using independent agents
aligned with affinity based marketing programs. This campaign was discontinued
during the second quarter of the fiscal year ending April 30, 1999. The Company
is no longer conducting, nor does it have any plans to conduct any marketing
campaigns to attract new customers since the Company has determined that it is
currently difficult to both procure new customers and achieve positive earnings
after amortization of acquisition costs for these new customers. This is due to
the competitive advantage held by facilities based carriers and Internet
marketing enterprises.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $8,100 for the three months ended July 31, 1999 compared to $299,007
for the three months ended July 31, 1998, a decrease of $290,907 or 97%. As a
percentage of sales, depreciation and amortization expense was less than 1% for
the three months ended July 31, 1999 and approximately 4% for the three months
ended July 31, 1998. For the three months ended July 31, 1999 no amortization
was provided, since the customer acquisition costs were fully expensed as at
April 30, 1999. The amortization for the three months ended July 31, 1998 was
related to the acquisition of the AIT customer base.
Interest Expense (Income), Net. Interest income (net) for the three months
ended July 31, 1999 was $4,398 compared to an interest expense of $3,917 for the
three months ended July 31, 1998. The interest income for the three months ended
July 31, 1999 was interest earned as a result of a positive cash balance. The
interest expense for the three months ended July 31, 1998 was primarily due to
interest paid on a Note payable to WorldCom under a settlement agreement. This
Note was subsequently settled during the fiscal 1999 year.
Income Taxes. Income tax expense of $500,000 was provided for the three
months ended July 31, 1999 compared to no provision for the three months ended
July 31, 1998 due to tax versus book deductions in the fiscal year ending April
30, 1999. At April 30, 1999, the Company provided income tax expense of
$1,769,900, having settled the volume shortfall charge with TALK.
Net Income. The Company had net income of $955,385, or net income of $0.27
per share, for the three months ended July 31, 1999, as compared to net earnings
of $1,540,388, or $0.44 per share, for the three months ended July 31, 1998. The
lower net income for the three months ended July 31, 1999 was a direct result of
lower sales, offset by improved operating margins and lower operating expenses
as a percentage of sales.
Liquidity and Capital Resources
The Company's primary cash requirements had historically been to fund the
acquisition of customer bases and to fund increased levels of accounts
receivable (which have required substantial working capital) and to fund net
losses. The Company has historically satisfied its working capital requirements
principally through cash flow from operations (including advances from TALK) and
borrowings from institutions and carriers. The reduced levels of sales and
9
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receivables together with the positive cash position has significantly reduced
the Company's reliance on borrowings.
At July 31, 1999, the Company had a working capital deficit of $3,413,872,
as compared to working capital deficit of $4,377,357 at April 30, 1999. The
working capital deficits during the three months ended July 31, 1999 and the
fiscal year ended April 30, 1999 were largely due to the deferred revenue of
approximately $3 million and income taxes payable of approximately $2 million.
The deferred revenue relates to funds, held by TALK under a lockbox arrangement
for which repayment at that date was uncertain. The lockbox arrangement provided
that all funds in the lockbox remained the property of TALK until all amounts
owed to TALK were fulfilled. The uncertainty related to a volume shortfall
charge based on monthly minimum volume commitments as at April 30, 1999, which
was resolved by the TALK Agreement signed on December 8, 1999. As a result of
the TALK Agreement the deferred revenue will be recognized as income in the
third quarter of the fiscal year ending April 30, 2000.
The volume shortfall charge is included in carrier receivable, for which
the right of offset exists, and which relates to the Company's failure to
satisfy volume purchase commitments from its carrier, TALK. The volume shortfall
charge for the year ended April 30, 1999 was $1.1 million. The Company's
agreements with TALK provided that the Company maintain certain monthly revenues
(as defined in the agreements) to the carrier for services provided under the
agreements during stated periods. Under these prior agreements, the Company had
an exposure for a monthly commitment for such revenues of $3,000,000
(representing, in aggregate, $36,000,000 for the fiscal year ended April 30,
1999 and $18,600,000 for the fiscal year ended April 30, 1998). Based on a
settlement agreement ("TALK Agreement") with TALK on December 8, 1999, the
Company agreed to pay $1.1 million to resolve the shortfall charge. As part of
the TALK Agreement, TALK agreed to release approximately $2.9 million dollars of
cash to the Company that was held under a lockbox arrangement, to release all
receivables that were secured pursuant to a Partition Agreement, and to waive
all future minimum monthly volume commitments. In addition, the TALK Agreement
provides for an extension of the current carrier agreement until the later of
August 31, 2002, or the date that all obligations to TALK have been satisfied in
full, and for the exchange of mutual releases.
Net cash provided by operating activities was $736,044 for the three months
ended July 31, 1999 as compared to net cash provided by operating activities of
$571,520 for the three months ended July 31, 1998. The net cash provided by
operating activities for the three months ended July 31, 1999 is primarily
attributable to net income and a decrease in accounts receivable as a result of
a reduction in sales and improved collections, offset by an increase in the
carrier receivable owed by TALK to the Company. The balance owed by TALK relates
to funds held by TALK under the lockbox arrangement and not released to the
Company, and is shown net of the volume shortfall charge of $1.1 million, as
agreed to under the TALK Agreement.
For the three months ended July 31, 1998, the cash provided by operating
activities is primarily attributable to a decrease in accounts receivable as a
result of collections, and offset by a decrease in accounts payable as a result
of repayment of debt.
No cash was provided from investing activities for the three months ended
July 31, 1999 and 1998.
No cash was used in financing activities for the three months ended July
31, 1999 as compared to cash used in financing activities of $653,599 for the
three months ended July 31, 1998. The cash used in financing activities for the
three months ended July 31, 1998 is primarily attributable to the payment made
under the settlement of the AT&T debt outstanding in July 1998 as well as all
payments made to WorldCom under a settlement agreement. At July 31, 1999, the
Company had cash of $1,238,990.
The Company continues to explore strategic opportunities, partnerships and
business combinations. Certain of these options could involve the Company
selling all or substantially all of its assets or capital stock.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
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.)
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, 1998 and
incorporated herein by reference.)
10.1 Separation Agreement between Peter J. Russo with Registrant. (Filed as
an Exhibit to the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1999 and incorporated herein by reference.)
10.2 Consulting Agreement between Torbay Management Services, Inc., with
Registrant. (Filed as an Exhibit to the Company's Annual Report on Form
10-KSB for the year ended April 30, 1999 and incorporated herein by
reference.)
10.3 Separation Agreement between Gerald M. Dunne, Jr. with Registrant.
(Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for
the year ended April 30, 1999 and incorporated herein by reference.)
10.4 Employment Agreement of Glenn S. Koach with Registrant. (Filed as an
Exhibit to the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1999 and incorporated herein by reference.)
10.5 Sublease Agreement between ADMINASSISTANCE with the Registrant dated
November 4, 1999. (Filed as an Exhibit to the Company's Annual Report
on Form 10-KSB for the year ended April 30, 1999 and incorporated
herein by reference.)
(b) Exhibit 27--Financial Data Schedule
(c) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended July
31, 1999.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GROUP LONG DISTANCE, INC.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ GLENN S. KOACH President and Chief Executive Officer March 3, 2000
------------------------------ (Principal Executive Officer)
Glenn S. Koach
By: /s/ SAM D. HITNER Chief Financial Officer March 3, 2000
----------------------------- (Principal Financial and Accounting Officer)
Sam D. Hitner
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GROUP LONG DISTANCE, INC. FINANCIAL STATEMENTS ENDED JULY 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JUL-31-1999
<CASH> 1,238,990
<SECURITIES> 0
<RECEIVABLES> 1,198,264
<ALLOWANCES> (429,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,526,487
<PP&E> 127,046
<DEPRECIATION> (121,978)
<TOTAL-ASSETS> 2,531,555
<CURRENT-LIABILITIES> 5,940,359
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,408,804)
<TOTAL-LIABILITY-AND-EQUITY> 2,531,555
<SALES> 3,488,311
<TOTAL-REVENUES> 3,488,311
<CGS> 1,799,994
<TOTAL-COSTS> 1,799,994
<OTHER-EXPENSES> 57,405
<LOSS-PROVISION> 179,925
<INTEREST-EXPENSE> (4,398)
<INCOME-PRETAX> 1,455,385
<INCOME-TAX> 500,000
<INCOME-CONTINUING> 955,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 955,385
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
