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 January 31, 2000
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 |X| No |_|
The number of shares of Common Stock, no par value, outstanding as of April 10,
2000 was 3,500,402.
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 January 31, 2000 (Unaudited) and April 30,
1999........................................................................................ 1
Unaudited Consolidated Statements of Operations for the Nine months ended and
Three months ended January 31, 2000 and 1999................................................ 2
Unaudited Consolidated Statements of Cash Flows for the Nine months ended
January 31, 2000 and 1999................................................................... 3
Notes to Consolidated Financial Statements.................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................. 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 11
SIGNATURES.................................................................................. 13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 2000 (Unaudited) and April 30, 1999
January 31, April 30,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash................................................................................. $1,182,356 $502,946
Accounts receivable less allowance for doubtful accounts of $248,000 and
$388,000 at January 31, 2000 and April 30, 1999, respectively........................ 585,059 1,291,461
Carrier receivable................................................................... 160,689 --
Prepaid expenses and other current assets............................................ 4,750 6,155
---------- ----------
Total current assets................................................................. 1,932,854 1,800,562
Property and equipment, net.......................................................... 7,079 13,168
---------- ----------
Total assets......................................................................... $1,939,933 $1,813,730
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Volume shortfall charge payable, net................................................. 488,890 407,738
Accounts payable..................................................................... 321,882 476,084
Deferred revenue..................................................................... -- 3,012,244
Income taxes payable................................................................. 1,417,612 1,769,900
Accrued expenses and other liabilities............................................... 128,782 511,953
---------- ----------
Total liabilities.................................................................... 2,357,166 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 January 31, 2000 and April 30, 1999,
respectively......................................................................... -- --
Additional paid-in capital........................................................... 5,913,988 5,913,988
Accumulated deficit.................................................................. (6,331,221) (10,278,177)
---------- ----------
Total stockholders' deficit.......................................................... (417,233) (4,364,189)
---------- ----------
Total liabilities and stockholders' deficit.......................................... $1,939,933 $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 Nine Months and Three Months Ended
January 31, 2000 and 1999
Nine Months Three Months
Ended January 31, Ended January 31,
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.................................................. $11,793,895 $21,312,008 $5,367,277 $5,408,839
Cost of Sales.......................................... 4,257,870 12,922,067 1,023,465 2,834,374
----------- ----------- ---------- ----------
Gross Profit........................................... 7,536,025 8,389,941 4,343,812 2,574,465
Selling, general and administrative expenses........... 1,481,622 2,180,276 340,343 249,914
Marketing Expenses..................................... -- 134,692 -- --
Depreciation and amortization.......................... 14,168 771,262 1,000 208,884
----------- ----------- ---------- ----------
Income from operations................................. 6,040,235 5,303,711 4,002,469 2,115,667
Interest Expense (Income), net......................... (31,721) 82,989 (16,835) 29,943
----------- ----------- ---------- ----------
Income before income taxes............................. 6,071,956 5,220,722 4,019,304 2,085,724
Income tax expense..................................... 2,125,000 800,000 1,425,000 500,000
----------- ----------- ---------- ----------
Net income............................................. $3,946,956 $4,420,722 $2,594,304 $1,585,724
---------- ---------- ---------- ----------
Net income per common share--basic...................... $1.13 $1.26 $0.74 $0.45
========== ========== ========== ==========
Net income per common share--diluted.................... $1.13 $1.26 $0.74 $0.45
========== ========== ========== ==========
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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 Nine months ended January 31, 2000 and 1999
Nine Months Ended
January 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income.......................................................................... $3,946,956 $4,420,722
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization....................................................... 14,168 771,292
Provision for bad debts............................................................. 430,758 240,371
Changes in assets and liabilities
Decrease in accounts receivable............................................ 275,644 6,031,100
Increase in Carrier receivable............................................. (160,689) --
Decrease in prepaid expenses and other current assets...................... 1,405 85,732
Increase in volume shortfall charge payable, net........................... 81,152 --
Decrease in accounts payable............................................... (154,202) (13,486,614)
Decrease in Deferred revenue............................................... (3,012,244) --
(Decrease) increase in accrued expenses and other liabilities.............. (383,171) 2,355,047
(Decrease) increase in income taxes payable................................ (352,288) 933,854
---------- ----------
Net cash provided by operating activities............................... 687,489 1,351,504
---------- ----------
Cash flows from investing activities
Acquisition of property and equipment....................................... (8,079) --
---------- ----------
Net cash used in financing activities.................................... (8079) --
---------- ----------
Cash flows from financing activities
Principal repayments of long-term debt...................................... -- (1,007,704)
---------- ----------
Net cash used in financing activities................................... -- (1,007,704)
---------- ----------
Net increase in cash................................................................ 679,410 343,800
Cash at beginning of year........................................................... 502,946 303,962
---------- ----------
Cash at end of period............................................................... $1,182,356 $647,762
========== ========
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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 nine months ended January 31, 2000 are not necessarily
indicative of the results that may be expected for the 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 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.com
("TALK"), formerly Tel-Save, Inc., a nationwide provider of telecommunications
services 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.
4
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GROUP LONG DISTANCE, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--TALK AGREEMENT
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. The $1.1 million was payable, 50% immediately and the balance
over an eighteen-month period. As part of the TALK Agreement, TALK agreed to
release approximately $2.9 million dollars of cash (net of the $550, 000) 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. The remaining
balance of the volume shortfall charge as at January 31, 2000 was $488,890.
As a result of the TALK Agreement, deferred revenue was recognized as
income in the current quarter results for the three months ended January 31,
2000. The deferred revenue related to funds, held by TALK under a lockbox
arrangement for which repayment at April 30, 1999 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 reversal of deferred revenue
resulted in higher sales for the nine and three months ended January 31, 2000
without a corresponding charge to cost of sales and an incremental increase in
net income before taxation of $3,012,244.
NOTE D--SUBSEQUENT EVENTS
On March 28, 2000, the Company and Coyote Network Systems, Inc.
("COYOTE") executed a Letter of Intent, which provides, among other things, for
the merger between a wholly owned subsidiary of COYOTE and the Company. Pursuant
to the merger, the shareholders of the Company would receive approximately $5.6
million in shares of COYOTE common stock.
The transaction is subject to, among other things, approval by both the
Company and COYOTE's board of directors, completion of due diligence, execution
of definitive documents and approval by the shareholders of the Company. It is
anticipated that the closing would occur in the Company's second fiscal quarter
ending October 31, 2000.
On March 31, 2000 the Company filed a FORM 8-K with the Securities
Exchange Commission relating to the COYOTE Letter of Intent to acquire the
Company.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
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 the TALK Agreement 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. As a result of the TALK Agreement, deferred
revenue was recognized as income in the current quarter results for the three
months ended January 31, 2000. The deferred revenue related to funds, held by
TALK under a lockbox arrangement for which repayment at April 30, 1999 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
reversal of deferred revenue resulted in higher sales for the nine and three
months ended January 31, 2000 without a corresponding charge to cost of sales
and an incremental increase in net income before taxation of $3,012,244.
6
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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 of April 30, 1999 the Company employed four full-time employees and
at April 10, 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 has explored strategic opportunities, partnerships and
business combinations. The Company has signed a Letter of Intent with COYOTE to
merge with a subsidiary of COYOTE (See Unaudited Notes to Consolidated Financial
Statements "Note D- Subsequent Events").
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:
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Nine Months Ended Three Months Ended
January 31, January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.............................................. 100% 100% 100% 100%
Cost of Sales...................................... 36 61 19 52
Gross profit....................................... 64 39 81 48
Selling, general and administrative expense. 13 10 6 5
Marketing expenses................................. -- * -- --
Depreciation and amortization expense.............. * 4 * 4
Interest expense/income, net....................... * * * 1
Income before income taxes......................... 51 25 75 38
Income tax expense................................. 18 4 27 9
Net income......................................... 33 21 48 29
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*Less than 1 percent
Comparison of Nine months ended January 31, 2000 to Nine months ended January
31, 1999 and of Three months ended January 31, 2000 to Three months ended
January 31, 1999.
Sales. The Company's sales were $11,793,895 for the nine months ended
January 31, 2000, compared to $21,312,008 for the nine months ended January
31,1999, a decrease of $9,518,113 or 45%. The Company's sales were $5,367,277
for the three months ended January 31, 2000, compared to $5,408,839 for the
three months ended January 31, 2000, a decrease of $41,562 or 1%. The decreases
in sales were a result of the termination of the previous telemarketing campaign
and normal attrition of the customer base. Sales for the nine months and three
months ended January 31, 2000 includes deferred revenue being recognized as
income in the current quarter of $3,012,244 as a result of the TALK Agreement.
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 currently 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 $4,257,870 for the nine months ended
January 31, 2000, compared to $12,922,067 for the nine months ended January
31,1999, a decrease of $8,664,197 or 67%. Cost of sales were $1,023,465 for the
three months ended January 31, 2000, compared to $2,834,374 for the three months
ended January 31, 1999, a decrease of $1,810,909 or 64%. As a percentage of
sales, cost of sales was 36% and 61% for the nine months ended January 31, 2000
and nine months ended January 31, 1999, respectively. As a percentage of sales,
cost of sales was 19% and 52% for the three months ended January 31, 2000 and
three months ended January 31, 1999, 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 the effect of the
recognition of the deferred revenue in the current quarter, the Company being
able to better negotiate its buy rate from its carrier as a result of the TALK
Agreement and a change in the mix of customer base from the nine months ended
January 31, 1999.
8
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Gross Profit. Gross profit was $7,536,025 for the nine months ended
January 31, 2000 compared to $8,389,941 for the nine months ended January
31,1999, a decrease of $853,916 or 10%. Gross profit was $4,343,812 for the
three months ended January 31, 2000 compared to $2,574,465 for the three months
ended January 31, 1999, an increase of $1,769,347 or 68%. As a percentage of
sales, gross profit was 64% and 39% for the nine months ended January 31, 2000
and January 31, 1999, respectively. As a percentage of sales, gross profit was
81% and 48% for the three months ended January 31, 2000 and three months ended
January 31, 1999, respectively. The increase in gross profit percentages in the
nine months ended January 31, 2000 was primarily as a result of the effect of
the recognition of the deferred revenue in the current quarter, a lower buy rate
from the carrier and improved margins on, and a change in the mix of customer
base from the nine months ended January 31, 1999.
Selling, General and Administrative Expense. Selling, general and
administrative expenses ("SG&A") were $1,481,622 for the nine months ended
January 31, 2000 compared to $2,180,276 for the nine months ended January 31,
1999, a decrease of $698,654 or 32%. Selling, general and administrative
expenses ("SG&A") were $340,343 for the three months ended January 31, 2000
compared to $249,914 for the three months ended January 31, 1999, an increase of
$90,429 or 36%. SG&A expenses for the nine months ended January 31, 2000 include
accruals for two Severance Packages totaling $310,000 for Messrs. Dunne, former
President and Chief Executive Officer of the Company, and Russo, former Chief
Financial Officer of the Company. As a percentage of sales, SG&A for the nine
months ended January 31, 2000 and 1999 was approximately 13% and 10%,
respectively. As a percentage of sales, SG&A for the three months ended January
31, 2000 and 1999 was approximately 6% and 5%, respectively. This increase in
SG&A for the three months ended January 31, 2000 as compared to the three months
ended January 31, 1999, was due to a once-time reversal of certain accruals no
longer deemed necessary for the three months ended January 31, 1999. This had
the effect of significantly reducing operating expenses for the three months
ended January 31, 1999.
Marketing Expenses. There were no marketing expenses for the nine
months and three months ended January 31, 2000. Marketing expenses were $134,692
for the nine months ended January 31, 1999. During the nine months ended January
31, 1999, 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 fiscal year 1999. The
Company is no longer conducting, nor does it have any plans to conduct any
marketing campaign 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 $14,168 for the nine months ended January 31, 2000 compared to
$771,262 for the nine months ended January 31,1999, a decrease of $757,094 or
98%. Depreciation and amortization expense was $1,000 for the three months ended
January 31, 2000 compared to $208,884 for the three months ended January 31,
1999, a decrease of $207,884 or 99%. As a percentage of sales, depreciation and
amortization expense was less than 1% for the nine months ended January 31, 2000
and approximately 4% for the nine months ended January 31,1999. As a percentage
of sales, depreciation and amortization expense was less than 1% for the three
months ended January 31, 2000 and approximately 4% for the three months ended
January 31, 1999. For the nine months ended January 31, 2000 no amortization was
provided, since the customer acquisition costs were fully expensed as at April
30, 1999. The depreciation and amortization for the nine months ended January
31,1999 was related to the acquisition of the AIT customer base.
Interest Expense (Income), Net. Interest income (net) for the nine
months ended January 31, 2000 was $31,721 compared to an interest expense of
9
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$82,989 for the nine months ended January 31,1999. Interest income (net) for the
three months ended January 31, 2000 was $16,835 compared to an interest expense
of $29,943 for the three months ended January 31, 1999. The interest income for
the nine months and three months ended January 31, 2000 was interest earned as a
result of a positive cash balance. The interest expense for the nine months and
three months ended January 31,1999 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 $2,125,000 was provided for the
nine months ended January 31, 2000 compared to $800,000 for the nine months
ended January 31,1999. Income tax expense of $1,425,000 was provided for the
three months ended January 31, 2000 compared to $500,000 for the three months
ended January 31, 1999. For the nine months ended January 31, 2000, the Company
applied the applicable statutory federal income tax rate of 34% to pretax income
without taking into account any tax allowances or benefits.
Net Income. The Company had a net income of $3,946,956 or net income of
$1.13 per share, for the nine months ended January 31, 2000, as compared to net
income of $4,420,722 or $1.26 per share, for the nine months ended January
31,1999. The Company had a net income of $2,594,304, or net income of $0.74 per
share, for the three months ended January 31, 2000, as compared to net income of
$1,585,724, or $0.45 per share, for the three months ended January 31, 1999. The
net income for the nine months and three months ended January 31, 2000 was
primarily due to the reversal of the deferred revenue of $3,012,244 as a result
of the TALK agreement, and improved operating margins despite a decrease in
sales. The reversal of deferred revenue resulted in higher sales for the nine
and three months ended January 31, 2000 without a corresponding charge to cost
of sales and an incremental increase in net income before taxation of
$3,012,244.
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
receivables together with the positive cash position has significantly reduced
the Company's reliance on borrowings.
At January 31, 2000, the Company had a working capital deficit of
$424,312, as compared to working capital deficit of $4,377,357 at April 30,
1999. The working capital deficit during the nine months ended January 31, 2000
was primarily due to income taxes payable of approximately $1.4 million and
after taking into account the release of cash held in the lockbox arrangement as
a result of the TALK agreement and the payment of all Federal and State taxes
for the fiscal year ended April 30, 1999. For the fiscal year ended April 30,
1999 the working capital deficit was largely due to the deferred revenue of
approximately $3 million and income taxes payable of approximately $2 million.
The deferred revenue related 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 was recognized as income in the current
quarter results for the three months ended January 31, 2000.
The volume shortfall charge was included in volume shortfall charge
payable, net, for which the right of offset existed. The volume shortfall charge
related to the Company's failure to satisfy volume purchase commitments from its
carrier, TALK. The volume shortfall charge at January 31, 2000 was $488,890 and
at 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
10
<PAGE>
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. The $1.1 million was payable, 50%
immediately and the balance over an eighteen-month period. As part of the TALK
Agreement, TALK agreed to release approximately $2.9 million dollars of cash to
the Company (net of the $550,000) 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 $687,489 for the nine
months ended January 31, 2000 as compared to net cash provided by operating
activities of $1,351,504 for the nine months ended January 31, 1999. The net
cash provided by operating activities for the nine months ended January 31, 2000
is primarily attributable to net income from operating activities, a reversal of
deferred revenue and offset by a decrease in volume shortfall charge payable and
income taxes payable.
For the nine months ended January 31, 1999, the cash provided by
operating activities is attributable to net income from operating activities, 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.
Cash used in investing activities was $8,079 for the nine months ended
January 31, 2000. No Cash was used in investing activities for the nine months
ended January 31, 1999.
No cash was used in financing activities for the nine months ended
January 31, 2000 as compared to cash used in financing activities of $1,007,704
for the nine months ended January 31, 1999. The cash used in financing
activities for the nine months ended January 31, 1999 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
January 31, 2000, the Company had cash of $1,182,356.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS 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.)
11
<PAGE>
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.)
10.6 Employment Agreement of Sam D. Hitner with Registrant. (Filed as an
Exhibit to the Company's Quarterly Report on Form 10-QSB for the
nine months ended January 31, 2000.)
(b) Exhibit 27--Financial Data Schedule
(c) Reports on Form 8-K
None
12
<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 April 10, 2000
--------------------- (Principal Executive Officer)
Glenn S. Koach
By: /s/ SAM D. HITNER Chief Financial Officer April 10, 2000
--------------------- (Principal Financial and Accounting Officer)
Sam D. Hitner
</TABLE>
13
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT between GROUP LONG DISTANCE, INC. (hereinafter the
"Company") and SAM D. HITNER, an individual (hereinafter the "Employee") is
entered into as of and will be effective as of February 1, 2000.
WHEREAS, the Employee is currently employed as Chief Financial Officer
of the Company and serves as Secretary of the Company; and
WHEREAS, the Company desires that the Employee continue to be employed
as Chief Financial Officer of the Company and to serve as Secretary of the
Company; and
WHEREAS, the Employee wishes to be so employed;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:
1. EMPLOYMENT.
The Company agrees to employ the Employee in the position of Chief
Financial Officer, and the Employee agrees to continue employment with the
Company on the terms and conditions hereinafter set forth. The Employee shall
also serve as Secretary of the Company, as provided for in the By-Laws of the
Company, during the term of this Agreement.
2. DUTIES.
(a) The Employee shall perform satisfactorily all duties of his
position, as provided for in the By-Laws of the Company and as determined from
time-to-time by the President of the Company.
(b) The Employee shall devote such time to the development and
operations of the Company's business as is necessary or advisable. (c) The
Employee shall be accountable to the President and Chief Executive Officer.
(c) The Employee shall be accountable to the President and Chief
Executive Officer.
<PAGE>
(d) As Chief Financial Officer, all financial matters of the Company
shall be reported directly to Employee.
(e) The Employee shall abide by the policies, standards and rules
established from time-to-time by the Board of Directors for the conduct of the
business of the Company. The Employee will not intentionally or negligently act
in any manner to cause financial or other damage to the Company or the Company's
reputation in the community in which its business is located. The Board of
Directors reserves the right to change, interpret, withdraw or add to any of the
policies, standards and rules of the Company at any time as it deems
appropriate. The President and Chief Executive Officer of the Company and the
Board of Directors shall not entertain discussion regarding amendments to this
Agreement or the termination of Employee without prior notice to Employee.
(f) The Employee will not interfere with the President or members of
the Board of Directors making reasonable inquiry into the financial affairs of
the Company and will not stifle the free flow of financial information to them.
3. TERM.
(a) The term of this Agreement shall commence as of the date hereof,
and shall be in force for a twelve (12) month period. The Agreement shall be
automatically renewed for twelve (12) month periods in full force and effect
from the expiration of any period hereunder, unless one of the parties hereto
shall give written notice to the other party not less than sixty (60) days prior
to the expiration of such period, of the party's intention to terminate the
Agreement at the expiration of such period.
(b) If one of the parties hereto gives proper notice to the other
party that this Agreement will not be automatically renewed pursuant to the
provisions of Section 3(a) hereof, the
2
<PAGE>
Employee: (i) shall continue his employment with the Company until the
expiration of the current term of this Agreement; and (ii) shall continue to
receive all compensation and benefits to which the Employee is entitled under
this Agreement until the expiration of such period.
4. COMPENSATION AND BENEFITS:
(a) For all services rendered by the Employee for each contract
year, the Employee shall receive a base salary of EIGHTY FIVE THOUSAND DOLLARS
($85,000.00) per year.
(b) The Employee shall be entitled to stock options in accordance
with the Company's 1996 Stock Option Plan on the terms and conditions of the
Option Agreement attached hereto as Exhibit "A".
(c) The Employee shall be entitled to fifteen (15) days of vacation
which may be used as long as such vacation time does not interfere with normal
business operations and the Employee's duties as Chief Financial Officer.
(d) The Employee shall be entitled to such sick days and personal
days as may be established by the Company for officers of the Company.
(e) At the sole discretion of the President of Company, the Employee
may be granted a bonus from time to time, the amount of which shall be
determined by the President. The President will consider certain factors in
making such determination, including but not limited to, the Company's
performance, profitability, positive cash flow, and any other significant event
or matter.
(f) The Employee shall be entitled to full health benefits during
the term of this Agreement.
3
<PAGE>
(g) The Employee shall be entitled to participate in the Simple IRA
Plan maintained by Company from time-to-time, and Company agrees to contribute
three (3%) percent of Employee's gross annual salary to such Simple IRA Plan
during each year this Agreement remains in effect.
5. TERMINATION OF EMPLOYMENT.
(a) During the term of this Agreement, the Company may terminate the
Employee for Cause (as defined herein) and without Cause. The Company must give
written notice of any such termination.
(b) If the Company terminates the Employee during the term of this
Agreement for Cause, the Employee shall not be entitled to receive any further
installments of Employee's base salary or any other compensation (including
severance payments) from the Company pursuant to this Agreement or otherwise.
(c) If the Company terminates the Employee during the term of this
Agreement without Cause, the Employee shall be entitled to receive a severance
payment equal to six (6) months of the Employee's base salary and all benefits.
The Employee shall cease to be entitled to such severance payment in the event
that the Employee violates the terms of Section 7 of this Agreement. The
Employee shall be entitled to such severance payment as of the date written
notice of termination is provided to the Employee. Such compensation shall be
paid in equal monthly installments over a period of three (3) months.
(d) "Cause" for purposes of this Section 5 shall mean the
Employee's: (a) engagement in gross misconduct materially injurious to the
Company; or (b) knowing and willful neglect or refusal to attend to the material
duties assigned to him by the President and Chief Executive Officer or the Board
of Directors of the Company, which is not cured within thirty (30)
4
<PAGE>
days after written notice; or (c) intentional misappropriation of property of
the Company to the Employee's own use; or (d) commission of an act of fraud or
embezzlement; or (e) conviction for a crime (excluding minor traffic offenses).
6. REIMBURSEMENT OF EXPENSES.
The Company shall reimburse the Employee for the Employee's reasonable
expenses incurred by the Employee in connection with the Employee's duties under
this Agreement. The Employee shall comply with all reasonable recordkeeping
requirements of the Company with respect to the reimbursement of expenses.
7. AGREEMENT NOT TO COMPETE.
(a) During the term of this Agreement and for a period of six (6)
months after the termination of this Agreement, the Employee agrees not to
engage in the telecommunication business, either directly or indirectly, other
than on behalf of the Company and its affiliated companies without the written
approval of the Board of Directors of the Company. The term telecommunication
business shall be deemed to include long distance business (national and
international), mobile communications, beepers, local access communications and
debit card or other prepaid calling services and other similar business.
Further, during the period of employment, the Employee agrees not to undertake
any outside business investment opportunity that may reasonably be deemed to
conflict with the interests of the Company or an usurpation of corporate
opportunity for the Company, without the written approval of the Board of
Directors of the Company.
(b) If any portion of the restrictions set forth above should, for
any reason whatsoever, be declared invalid by a court of competent jurisdiction,
the validity or enforceability of the remainder of such restrictions shall not
thereby be adversely affected.
5
<PAGE>
(c) The Employee declares that the foregoing scope, territorial and
time limitations are reasonable and properly required for the adequate
protection of the business of the Company. In the event any such scope,
territorial or time limitation is deemed to be unreasonable by a court of
jurisdiction, the Employee agrees to the reduction of said scope, territorial or
time limitation to such scope, area or period which said court shall have deemed
reasonable.
(d) The existence of any claim or cause of action by the Employee
against the Company other than under this Agreement shall not constitute a
defense to the enforcement by the Company of the foregoing restrictive
covenants, but such claim or cause of action shall be litigated separately.
8. ENTIRE AGREEMENT.
This instrument contains the entire agreement of the parties. It may
not be changed orally. It may only be changed by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
This Agreement supersedes in its entirety all prior employment
agreements between the Company and the Employee.
9. SITUS.
This Agreement shall be governed by the laws of the State of Florida.
10. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding on the Company's successors and
assigns.
11. SEVERABILITY.
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provision.
6
<PAGE>
12. WAIVER OF BREACH.
The waiver by the Employee or the Company of any breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach by the other.
13. CONFIDENTIALITY.
The Employee shall keep confidential all proprietary and other
information concerning the Company and its business, including but not limited
to information concerning the Company's customers, vendors and others with whom
it transacts business, its methods of operation and other trade secrets, it
future plans and strategies, and any financial information concerning the
Company (collectively, "Confidential Information"). The Employee agrees that all
Confidential Information is the exclusive property of the Company and that
Employee will not remove the originals or make copies of any Confidential
Information without the Company's prior written consent. The Employee shall not
use Confidential Information for any purposes other than to carry out his
obligations under this Agreement and will not divulge Confidential Information
to any other person or entity during or after the term of this Agreement without
the Company's prior written consent, unless required by law or judicial or other
process. The provisions of this Section 13 shall continue to apply to the
parties after this Agreement is terminated.
14. ARBITRATION.
In the event the Employee has any dispute, controversy or claim with
the Company, including but not limited to any claim for wrongful termination,
sexual harassment or discrimination under the laws of the State of Florida or
the United States (excepting only worker's compensation, unemployment or
temporary disability claims submitted in accordance with State law), any such
dispute, controversy or claim shall be submitted to arbitration in accordance
with the American
7
<PAGE>
Arbitration Association's National Rules for the Resolution of Employment
Disputes. The American Arbitration Association shall appoint a single arbitrator
to hear and decide the dispute and any locale for any hearing will be at the
American Arbitration Association's office closest to the Company's offices in
Fort Lauderdale, Florida, or at such other location as the parties may mutually
agree upon. The arbitrator appointed by the American Arbitration Association
shall issue an opinion and award which shall be final and binding upon both the
Employee and the Company. All such disputes, controversies or claims shall be
filed with the American Arbitration Association within six (6) months after the
alleged incident, event or circumstance which gave rise to the dispute,
controversy or claim. The alternative dispute resolution mechanism provided for
in this Section 14 shall not preclude the Company from seeking or obtaining
judicial relief in the event the Employee violates any provision of this
Agreement, particularly any breach of Sections 7 and 13.
IN WITNESS WHEREOF, the parties have executed the Agreement effective
as of the date first above written.
GROUP LONG DISTANCE, INC.
/s/ SAM D. HITNER By: /s/Glenn Koach
- ---------------------------- ----------------------------
SAM D. HITNER Glenn Koach
President
8
<PAGE>
EXHIBIT "A"
-----------
INCENTIVE STOCK OPTIONS AGREEMENT
---------------------------------
THIS INCENTIVE STOCK OPTIONS AGREEMENT (hereinafter referred to as
"AGREEMENT") is made effective this 1st day of February, 2000, by and between
GROUP LONG DISTANCE, INC., a Florida corporation (hereinafter referred to as
"GLD") and SAM D. HITNER (hereinafter referred to as "HITNER").
RECITALS:
WHEREAS, GLD has adopted the "Group Long Distance, Inc. 1996 Stock
Option Plan" (hereinafter referred to as "PLAN"), which provides for the
granting of incentive stock options to employees of GLD; and
WHEREAS, HITNER serves as Chief Financial Officer of GLD.
NOW, THEREFORE, IN CONSIDERATION of the premises and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Grant of Options. Effective as of the date hereof (hereinafter
referred to as "GRANT DATE"), GLD hereby grants to HITNER the options
(hereinafter referred to as "OPTIONS") to buy from GLD up to a total of Twenty
Five Thousand shares (hereinafter referred to as "OPTION SHARES") of the common
stock of GLD, in the amounts and at the price (hereinafter referred to as "PER
SHARE EXERCISE PRICE") set forth below:
10,000 shares at $ .20;
8,750 shares at $ .40; and
6,250 shares at $ .50.
The OPTIONS may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will, or by the laws of descent and
distribution, except that if permitted by GLD'S committee appointed by the Board
of Directors to administer the PLAN (hereinafter referred to as "COMMITTEE"),
HITNER may name a beneficiary or beneficiaries to whom any vested but unpaid
OPTIONS shall be paid in the event of the HITNER'S death.
2. Tender and Assignment. The exercise of this OPTIONS by HITNER must
be accomplished by actual delivery to GLD of the PER SHARE EXERCISE PRICE for
the number of OPTION SHARES being purchased in cash, certified check, or
official bank draft in lawful money of the United States of America, and by
actual delivery of a duly executed exercise form, a copy of which is attached to
this AGREEMENT as Exhibit "1" (hereinafter referred to as "EXERCISE FORM"),
properly executed by HITNER and setting forth the number of OPTION SHARES being
purchased. The payment of the PER SHARE EXERCISE PRICE for the number of OPTION
<PAGE>
SHARES being purchased and the executed EXERCISE FORM must be delivered,
personally, or by mail, to GLD's attorney, Thomas R. Tatum, Esq., Brinkley,
McNerney, Morgan, Solomon & Tatum, LLP, 200 East Las Olas Boulevard, Suite
#1800, Fort Lauderdale, Florida 33301. Documents sent by mail shall be deemed to
be delivered when they are received by GLD's attorney. Upon the tender to GLD's
attorney of the PER SHARE EXERCISE PRICE for the number of OPTION SHARES being
purchased and EXERCISE FORM, GLD shall assign the number of OPTION SHARES being
purchased to HITNER, which shall be free from all taxes, liens and charges.
3. Exercise Period. HITNER may only exercise the OPTIONS during the
exercise period (hereinafter referred to as "EXERCISE PERIOD"). The EXERCISE
PERIOD shall commence on the GRANT DATE and shall terminate on the earliest to
occur of: (A) the expiration of five (5) years from the GRANT DATE; (B) the
expiration of three (3) months from the date HITNER ceases to be employed by GLD
for any reason other than HITNER'S death or disability (which for purposes of
this AGREEMENT shall mean a permanent and total disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, provided that
the GLD'S committee appointed by the Board of Directors to administer the PLAN
may determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by such committee from time to
time); or (C) the expiration of one (1) year from the date HITNER ceases to be
employed by GLD due to HITNER'S disability or death.
4. Notices. Any and all notices given to HITNER must be given by first
class mail, postage prepaid, addressed to HITNER at the address appearing in the
records of GLD. Any and all notices given to GLD must be given personally or by
first class mail, postage prepaid, addressed to GLD at GLD's headquarters and to
GLD's attorney, Thomas R. Tatum, Esq., Brinkley, McNerney, Morgan, Solomon &
Tatum, LLP, 200 East Las Olas Boulevard, Suite #1800, Fort Lauderdale, Florida
33301.
5. Partial Exercises of Options. Subject to the terms hereof, the
OPTIONS may be exercised in whole or in part.
6. Conflicts with Laws or Plan. This AGREEMENT is intended to comply
with applicable law and all applicable terms and conditions of the PLAN, as
amended from time to time, which is incorporated herein by reference in its
entirety. To the extent any provision of this AGREEMENT is illegal or shall
conflict with the terms of the PLAN, the terms of the PLAN shall control, the
unenforceable or conflicting provision of this AGREEMENT shall be deemed null
and void to the extent permitted by law and deemed advisable by the COMMITTEE,
and the remainder of this AGREEMENT shall be valid and enforceable in accordance
with its terms.
7. Governing Law. This AGREEMENT shall be governed by, and construed
and enforced in accordance with, the laws of the State of Florida, excluding the
conflicts of laws principles thereof.
2
<PAGE>
8. Amendment. This AGREEMENT may not be modified or amended except by a
writing executed by all of the parties hereto.
9. Construction. This AGREEMENT shall be construed without regard to
any presumption or other rule of law requiring construction against the party
causing this AGREEMENT to be drafted.
10. Headings. Article headings shall not be deemed to be a part of the
provisions of such articles or have any affect upon the construction thereof,
but the same were inserted for the purpose of reference only.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT effective
this 1st day of February, 2000.
GROUP LONG DISTANCE, INC.
By: /s/ Glenn Koach
- -------------------------- --------------------------
Glenn Koach, President
- --------------------------
AS TO GLD
/s/ SAM D. HITNER
- -------------------------- ----------------------------
SAM D. HITNER
- --------------------------
AS TO HITNER
3
<PAGE>
EXHIBIT "1"
-----------
EXERCISE OF STOCK OPTIONS
Thomas R. Tatum, Esq.
Brinkley, McNerney, Morgan, Solomon & Tatum, LLP
200 East Las Olas Boulevard, Suite #1800
Fort Lauderdale, Florida 33301
Dear Mr. Tatum:
The undersigned hereby: (1) irrevocably exercises his option to purchase
____________ shares (at $ .20)
____________ shares (at $ .40)
____________ shares (at $ .50)
of common stock of Group Long Distance, Inc., a Florida corporation, pursuant to
the Incentive Stock Option Agreement dated February 1, 2000, a copy of which is
enclosed for your reference; (2) encloses payment of $___________ for these
shares; and (3) requests that a certificate for the shares be issued in the name
of the undersigned and delivered to the undersigned at the address specified
below.
Date: _____________, _________.
------------------------------------
SAM D. HITNER
Address:
------------------------------------
------------------------------------
The foregoing instrument was sworn to, subscribed and acknowledged
before me this ______ day of ____________________, ____________, by Sam D.
Hitner, who is personally known to me or who has produced his driver's license
as identification.
------------------------------------
Notary Public, State of Florida
[Notary Seal]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GROUP LONG DISTANCE, INC. FINANCIAL STATEMENTS ENDED JANUARY 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JAN-31-2000
<CASH> 1,182,356
<SECURITIES> 0
<RECEIVABLES> 833,059
<ALLOWANCES> (248,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,932,854
<PP&E> 135,125
<DEPRECIATION> (128,046)
<TOTAL-ASSETS> 1,939,933
<CURRENT-LIABILITIES> 2,357,166
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (417,233)
<TOTAL-LIABILITY-AND-EQUITY> 1,939,933
<SALES> 11,793,895
<TOTAL-REVENUES> 11,793,895
<CGS> 4,257,870
<TOTAL-COSTS> 4,257,870
<OTHER-EXPENSES> 1,065,032
<LOSS-PROVISION> 430,758
<INTEREST-EXPENSE> (31,721)
<INCOME-PRETAX> 6,071,956
<INCOME-TAX> 2,125,000
<INCOME-CONTINUING> 3,946,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,946,956
<EPS-BASIC> 1.13
<EPS-DILUTED> 1.13
</TABLE>
