<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ , 19__ to ____________ , 19__.
Commission File Number: 0-23172
NETWORK LONG DISTANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 77-1122018
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
525 FLORIDA ST.
BATON ROUGE, LOUISIANA 70801
Address of Principal Executive Offices, Including Zip Code
(504) 343-3125
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods 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
------ ------
There were 3,004,872 shares of the Registrant's .0001 par value common stock
outstanding as of September 30, 1995.
(1)
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and six months ended
September 30, 1995 and 1994. The information should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
Since 1993, the Company has expanded rapidly as an ongoing result of its dual
focus on internal sales growth complimented by the addition of calling volume
generated through acquisitions. As a consequence, revenues, which are
principally derived from the number of minutes of use billed by the Company,
have increased dramatically.
For the second fiscal quarter of 1996, revenues, inclusive of excise taxes
and fees, were $6,944,992 compared to $5,887,073 for the second fiscal
quarter of 1995. This quarter to quarter comparison represents approximately
a 18.0% increase in revenue. For the six-month period ended September 30,
1995, revenues were $14,224,260 compared to $10,696,480 for the six-month
period ended September 30, 1994, an increase of approximately 33.0%. The
rise in revenues reflects an overall increase in long distance calling volume
resulting from the enhanced sales efforts of the Company's nationwide direct,
agent and wholesale marketing divisions; and from new calling traffic
generated by the Company's expanded acquisition program. The Company booked
47.1 million billable minutes in the three months ended September 30, 1995,
up 31.6% from 35.8 million in the second quarter last year. For the six
months ended September 30, 1995, the Company booked 96.0 million billable
minutes, compared to 66.1 million billable minutes for the six months ended
September 30, 1994, representing an increase of 45.2%.
Costs for telecommunications for the three months ended September 30, 1995
were $5,239,734, representing approximately 75.5% of revenue compared to
$4,691,442, representing approximately 79.7% for the same period in 1994.
For the six months ended September 30, 1995, telecommunication costs were
$10,997,430, approximately 77.3% of revenue, compared to $8,525,586, or
approximately 79.7% of revenue, for the six-month period ended September 30,
1994. This continues a trend of steadily declining line costs and is a
reflection of economies of scale resulting from the increase calling volume
from both internal sales and acquisitions currently moving through the
Company's recently expanded infrastructure. Management anticipates this
trend of declining line costs should continue as the Company moves its mix of
calling traffic to its more profitable lines of business.
Gross profits, revenues less telecommunications costs, were $1,705,258 for
the three months ended September 30, 1995, compared to $1,195,631 for the
three months ended September 30, 1994, an increase of approximately 42.6%.
Gross profits for the six-month period ended September 30, 1995 were
$3,226,830, compared to $2,170,894 for the same period in the previous year,
representing an increase of approximately 48.6%.
(2)
<PAGE>
Selling, and General and Administrative expense was $1,417,969 for the three
months ended September 30, 1995, representing 20.4% of revenue. This
compares with SG&A expense of $924,585 for the three months ended September
30, 1994, representing 15.7% of revenue. SG&A expense for the six-month
period ended September 30, 1995 was $2,748,373, or 19.3% of revenue, compared
to $1,690,539 for the six-month period ended September 30, 1994, or 15.8% of
revenue. This increase in SG&A expense is a direct result of a plan
initiated in the first quarter of this year to position the Company for
continued growth. Included in the plan was a consolidation of the Company's
three separate physical locations into a single headquarters/operations
center in Baton Rouge, the upgrading of all accounting, billing,
call-processing, customer service/ support and back-office management
systems, and the purchase and installation of the new DEX 600-S/Signaling
System 7 tandem automated central switch.
Depreciation and amortization expense was $202,550 for the three months ended
September 30, 1995, representing 2.9% of revenues. This is compared to
$74,743 for the three months ended September 30, 1994, which represented 1.3%
of revenues. Depreciation and amortization expense for the six-month period
ended September 30, 1995 was $357,073, representing 2.5% of revenue, compared
to $145,392 for the six months ended September 30, 1994, or 1.4% of revenue.
The increases in such expenses were due primarily to depreciation and
amortization of the additional equipment, customer bases and goodwill
resulting from acquisitions by the Company.
Net income for the three months ended September 30, 1995 was $26,372,
compared to $128,314 for the second fiscal quarter of 1995. Net income for
the six months ended September 30, 1995 was $40,163, compared to $246,106 for
the six months ended September 30, 1994. This decrease in net income is
attributable to the rise in SG&A, depreciation and amortization expenses.
For the six months ended September 30, 1995, the Company's cash flow used in
operating activities was $1,453,182, compared to cash flow provided by
operating activities of $368,433 for the six months ended September 30, 1994.
This decrease in cash flow from operations was primarily attributable to an
increase in the Company's accounts receivable, as well as a decrease in the
Company's accrued telecommunication costs. The Company made significant
capital investments in the first six months of fiscal year 1996, resulting in
a decrease in cash from investing activities of $786,616. These investments
included customer base and accounts receivable acquisitions, the central
switch, office furniture and equipment and leasehold improvements related to
the Company's new operations center. The Company has financed these capital
expenditures and acquisitions by utilizing approximately $2,100,000 of its
$3,000,000 revolving line of credit and by the sale of short-term investments
totaling $1,558,562. These short-term investments consisted of the remaining
funds from the Company's initial public offering in February 1994.
The Company is in the process of establishing a long-term capital plan that
calls for the utilization of a variety of financial vehicles and resources
- -including cash flow from operations, public debt and equity offerings,
private placements and expanded bank lines of credit - to finance future
capital expenditures, acquisitions and internal growth. The Company
currently maintains a revolving bank line of credit of $3,000,000, which
$900,000 is unused as of September 30, 1995.
(3)
<PAGE>
Stockholders' equity at September 30, 1995 was $7,239,545, and $7,103,416 at
March 31, 1995. The increase in stockholders' equity of $136,129 resulted
primarily from the issuance of common stock of $95,966 as part of the
financing of acquisitions, as well as the effect of $40,163 in net income.
Earnings per share were $.01 for the three-month period ended September 30,
1995, compared to .06 for the three months ended September 30, 1994. For the
six months ended September 30, 1995, earnings per share were $.02, compared
to $.11 for the six months ended September 30, 1994.
The Company intends to continue its strategic plan of expanding its customer
base by acquiring the assets or equity of other long distance
telecommunications companies, making capital acquisitions, expanding its
switchless product development, expanding or improving office facilities, and
increasing its networking capabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
SFAS No. 121 is effective for financial statements for fiscal years beginning
after December 15, 1995. The Company believes that SFAS No. 121 will not
have a material impact on the Company's consolidated results of operations or
financial position.
(4)
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1995
------------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $221,024 $348,753
Securities purchased under agreement to resell -0- 1,558,562
Accounts Receivable, net of allowance for doubtful
accounts of $572,788 and $499,546 at September 30,
1995, and March 31, 1995, respectively 5,330,852 4,123,954
Deferred income tax asset 75,723 42,231
Other current assets 305,125 37,801
----------- -----------
Total current assets 5,932,724 6,111,301
Property and Equipment
Land 75,000 75,000
Building and Improvements 623,197 382,315
Telecommunications equipment 1,711,148 1,640,315
Furniture and fixtures 1,140,878 671,640
----------- -----------
3,550,223 2,769,270
Less accumulated depreciation 1,181,417 968,766
----------- -----------
2,368,806 1,800,504
Intangibles, net 2,662,523 1,883,997
Other Assets 360,250 361,005
----------- -----------
Total assets $11,324,303 $10,156,807
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Short-term debt and current maturities of long-term
debt $2,262,334 $-0-
Accounts payable 152,977 871,893
Accrued telecommunications cost 985,912 1,481,409
Other accrued liabilities 438,312 500,428
Customer deposits 195,685 183,185
----------- -----------
Total current liabilities 4,035,220 3,036,915
Deferred income tax liability 49,538 16,476
Series A convertible preferred stock - $.01 par value;
25,000,000 shares authorized; no shares issued
and outstanding at September 30, 1995, and
March 31, 1995 -0- -0-
Stockholders' Equity
Common stock - $.0001 par value; 10,000,000 shares
authorized: 3,004,872 and 2,992,106 shares issued and
outstanding at June 30, 1995, and March 31, 1995. 300 299
Additional paid-in-capital 6,578,990 6,483,025
Retained Earnings 660,255 620,092
----------- -----------
Total stockholders' equity 7,239,545 7,103,416
----------- -----------
Total liabilities and stockholders' equity $11,324,303 $10,156,807
----------- -----------
----------- -----------
</TABLE>
(5)
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (including excise taxes of $62,018 and $50,308 $6,944,992 $5,887,073 $14,224,260 $10,696,480
for the three months ended September 30,
1995 and 1994, respectively, and $123,877 and
$101,019 for the six months ended September 30, 1995
and 1994, respectively.
Operating expenses:
Telecommunications costs 5,239,734 4,691,442 10,997,430 8,525,586
Selling, general and administrative 1,417,969 924,585 2,748,373 1,690,539
Depreciation and amortization 202,550 74,743 357,073 145,392
---------- ---------- ----------- -----------
Total 6,860,253 5,690,770 14,102,876 10,361,517
---------- ---------- ----------- -----------
Operating income 84,739 196,303 121,384 334,963
Interest (income) expense, net 45,837 (33,275) 40,253 (57,797)
---------- ---------- ----------- -----------
Income before income taxes 38,902 229,578 81,131 392,760
Provision for income taxes 12,530 101,264 40,968 146,654
---------- ---------- ----------- -----------
Net income 26,372 128,314 40,163 246,106
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per common share:Net income $ .01 $ .06 $ .02 $ .11
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
(6)
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $40,163 $246,106
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 217,651 133,030
Amortization 139,423 10,370
Provision for losses on accounts receivable 146,890 218,200
Provision (benefit) for deferred income taxes (43,460) 82,782
Provision for employee stock incentive plan 19,800 10,760
Changes in assets and liabilities, net of
effect of business combinations:
Accounts receivable (1,108,910) 552,142)
Other current assets (272,195) (1,410,864)
Accounts payable and other current
liabilities (592,544) 1,630,191
----------- ----------
Net cash provided by (used in) operating activities (1,453,182) 368,433
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,550,953) (263,148)
Sale of short-term investments 1,558,562 -0-
Acquisitions and related costs (631,273) -0-
Increase in other intangible assets (138,217) -0-
Other -0- -0-
----------- ----------
Net cash used in investing activities (761,881) (263,148)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 4,420,872 -0-
Principal payments on debt (2,308,803) (27,685)
Redemption of preferred stock -0- (55,527)
Loan to acquisition candidate -0- (1,000,000)
----------- ----------
Net cash provided by (used in) financing activities 2,087,334 (1,083,212)
----------- ----------
Net increase in cash and cash equivalents (127,729) (977,927)
Cash and cash equivalents at beginning of period 348,753 4,624,783
----------- ----------
Cash and cash equivalents at end of period $ 221,024 $3,646,856
----------- ----------
----------- ----------
</TABLE>
(7)
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission
regulations. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements
reflect all adjustments (of a normal and recurring nature) which are
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods. These financial statements should be
read in conjunction with the Annual Report of Network Long Distance, Inc.
(the "Company") on Form 10-K for the year ended March 31, 1995. The
results for the six months ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the year ending March 31,
1996.
NOTE 2 - CUSTOMER BASE ACQUISITIONS
The Company has completed a series of acquisitions of segments of other
long distance providers' customer bases. Such acquisitions have been
accomplished through the purchase of the customer base and related accounts
receivable for cash, shares of the Company's common stock, or a combination
thereof. All acquisitions have been accounted for as purchases and resulted
in an excess of the purchase price over the net tangible assets acquired.
In April 1995, the Company purchased a segment of the customer base and
related accounts receivable from Prime Telecom, Inc. for cash of
approximately $10,000 and forgiveness of $47,000 owed the Company. Of the
assets acquired, approximately $30,000 was recorded as the purchase price for
the customer base, which is located primarily in San Antonio, Tx.
In May 1995, the Company purchased a portion of the customer base and
related accounts receivable of Network Services, Inc. for cash of
approximately $565,000, common stock of $55,000, and $192,500 in notes. Of
the assets acquired, approximately $553,000 was recorded as the purchase
price of the customer base, which is located in Oklahoma.
In May 1995, the Company purchased a portion of the customer base and
related accounts receivables of Telecommunications Brokerage, Inc. by the
forgiveness of debt owed to the Company, amounting to approximately $99,000.
The purchase price of the customer base, located in Utah, was recorded as
approximately $97,000.
(8)
<PAGE>
In September 1995, the Company purchased another portion of the customer
base and related accounts receivable of Telecommunications Brokerage, Inc. by
the forgiveness of debt owed to the Company, amounting to approximately
$108,000. The purchase price of the customer base, located in Wyoming, was
recorded as approximately $94,000.
The initial purchase price allocations for the fiscal year 1996
acquisitions were based on estimates as the Company is waiting for more
detailed information concerning the current values of certain assets and
liabilities. As a result, the final purchase price allocations may differ
from the presented estimates. To identify the intangibles acquired in
these purchases, the Company employs a series of projections of the acquired
customer bases. These projections utilize cash flow models and historic and
projected attrition rates to quantify the values allocated to the various
acquired intangibles and the related useful lives. Management believes such
projections are achievable based on the current results of the Company's
operations.
NOTE 3 - EARNINGS PER COMMON SHARE
Earnings per share were calculated based on the following number of
common shares and common equivalent shares outstanding: 2,503,810 and
2,336,977 for the six months ended September 30, 1995 and 1994, respectively,
and 2,447,747 and 2,326,289 for the six months ended September 30, 1995 and
1994, respectively.
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid for the three months ended September 30, 1995 was $45,837,
compared to interest paid of $-0- for the three months ended September 30,
1994. For the six months ended September 30, 1995, interest paid amounted to
$40,253, compared to interest paid of $-0- for the six months ended September
30, 1994. Income taxes paid during the six months ended September 30, 1995
and 1994 were $230,716 and $-0-, respectively.
NOTE 5 - SUBSEQUENT EVENTS
On October 31, 1995, the Company acquired substantially all of the
assets of Value Tel, Inc. ("Value Tel") in a transaction to be accounted
for as a purchase of assets. These assets consist of certain of Value Tel's
long distance customer accounts and associated accounts receivable, primarily
located in the metropolitan area of Chicago, Illinois. The customer accounts
which were purchased include retail customer contracts, applications for
service, applications for credit, customer lists, databases, mailing lists
and billing information.
The Company purchased the Value Tel assets for 1,085,000 shares of the
Company's restricted common stock. The purchase price was valued at
approximately $12,000,000. A portion of these shares issued to Value Tel
will be held in escrow subject to future adjustments for variations in Value
Tel's billing over the next six months.
(9)
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK LONG DISTANCE, INC.
Dated: November 10, 1995 By: /s/ Marc I. Becker
------------------------------
Marc I. Becker, Vice President
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 221
<SECURITIES> 0
<RECEIVABLES> 5,903
<ALLOWANCES> 573
<INVENTORY> 0
<CURRENT-ASSETS> 5,933
<PP&E> 3,550
<DEPRECIATION> 1,181
<TOTAL-ASSETS> 11,324
<CURRENT-LIABILITIES> 4,035
<BONDS> 0
<COMMON> 300
0
0
<OTHER-SE> 7,239
<TOTAL-LIABILITY-AND-EQUITY> 11,324
<SALES> 14,224
<TOTAL-REVENUES> 14,224
<CGS> 10,997
<TOTAL-COSTS> 14,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 147
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 81
<INCOME-TAX> 41
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
