<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 June 30, 1996.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________ .
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
Incorporation or Organization) Identification Number)
525 FLORIDA STREET
BATON ROUGE, LOUISIANA 70801
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
(504) 343-3125
----------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 4,489,859 shares of the Registrant's $.0001 par value common stock
issued and outstanding as of June 30, 1996.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 and March 31, 1996 . . . . . . . . . . . . . . . 2
Consolidated Statements of Income
Three months ended June 30, 1996 and 1995. . . . . . . . . . . 3
Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995. . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 6-7
PART II - OTHER INFORMATION
Exhibits and Current Reports on Form 8-K . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
JUNE 30, MARCH 31,
1996 1996
----------- -----------
UNAUDITED
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 670,350 $ 886,683
Accounts receivable, net of allowance for doubtful
accounts of $1,377,000 and $1,001,000 at June 30,
1996, and March 31, 1996 respectively 6,760,086 6,946,534
Other receivables 639,965 708,962
Deferred income tax asset 131,656 131,656
Other current assets 426,974 583,561
----------- -----------
Total current assets 8,629,031 9,257,396
Property and equipment
Land 75,000 75,000
Building and improvements 696,947 686,470
Telecommunications equipment 1,369,224 2,210,908
Furniture and fixtures 1,463,413 1,341,828
----------- -----------
3,604,584 4,314,206
Less accumulated depreciation 1,729,350 1,661,091
----------- -----------
1,875,234 2,653,115
Customer Acquisition Costs, Net 8,426,456 6,276,439
Goodwill, Net 4,667,635 2,079,433
Other Intangibles, net
Other assets 362,558 417,130
Total assets 738,019 218,940
----------- -----------
$24,698,933 $20,902,453
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current maturities of long-term debt $ 1,141,301 $ 146,175
Accounts payable 342,520 297,524
Accrued telecommunications cost 2,573,003 2,736,999
Other accrued liabilities 1,064,259 892,716
Customer deposits 177,059 176,210
Current Maturities of Capital Lease Obligations
Total current liabilities 86,847 82,855
----------- -----------
5,384,989 4,332,479
Deferred income tax liability 58,201 58,201
Long-Term Debt 3,860,574 2,889,138
Capital Lease Obligation 89,109 126,481
Series A convertible preferred stock - $.01 par value;
25,000,000 shares authorized; no shares issued
and outstanding at June 30, 1996, and March 31, 1996. 0 0
Stockholders' equity
Common stock - $.0001 par value; 20,000,000 shares
authorized; 4,489,859 and 4,246,101 shares issued
and outstanding at June 30, 1996 and March 31,
1996, respectively 449 425
Additional paid-in capital 14,723,965 12,904,794
Retained earnings 581,646 590,935
----------- -----------
Total stockholders' equity 15,306,060 13,496,154
----------- -----------
Total liabilities and stockholders' equity $24,698,933 $20,902,453
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30
-----------------------
1996 1995
--------- ---------
Revenues (including excise taxes of $165,375
and $61,859 for the three months ended
June 30, 1996 and 1995, respectively) $9,968,386 $8,087,393
Operating expenses:
Telecommunications costs 6,896,811 6,216,813
Selling, general and administrative 2,315,197 1,480,884
Depreciation and amortization 384,910 176,346
Provision for losses on accounts receivable 254,040 92,746
--------- ---------
Total Operating expenses 9,850,958 7,966,789
--------- ---------
Operating income 117,428 120,604
Interest (income) expense, net 105,089 8,248
Other (income) loss 0 (3,942)
--------- ---------
Income before income taxes 12,339 116,298
Provision for income taxes 0 28,438
--------- ---------
Net income applicable to common stockholders 12,339 87,860
Proforma Adjustment (Note 1):
Income tax provision 4,700 28,887
--------- ---------
Proforma Net Income applicable to common
stockholders $ 7,639 $ 58,973
--------- ---------
--------- ---------
Earnings per common share $ .00 $ .03
--------- ---------
--------- ---------
Proforma earnings per common share $ .00 $ .02
--------- ---------
--------- ---------
See notes to consolidated financial statements.
-3-
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 12,339 $ 87,860
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 111,378 112,146
Amortization 273,532 64,200
Provision for losses on accounts receivable 254,040 65,349
Provision (benefit) for deferred income taxes 0 4,000
Provision for employee stock incentive plan 12,688 9,900
Changes in assets and liabilities, net of
effect of business combinations:
Accounts receivable 748,507 (676,915)
Other receivables 68,997 0
Other assets (356,679) (156,127)
Accrued line costs (357,996) 16,388
Accounts payable (11,125) (631,835)
Accrued liabilities 176,030 (67,001)
Other 0 (10,611)
----------- -----------
Net cash provided by (used in) operating activities 931,711 (1,182,646)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (136,276) (712,501)
Sale of short-term investments, net 0 762,508
Acquisition and related costs (3,690,144) (574,991)
Increase in intangible assets (29,885) (25,901)
Proceeds from sale of equipment 764,363 0
----------- -----------
Net cash used in investing activities (3,091,942) (550,885)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 8,104,263 1,668,773
Principal payments on debt (6,117,968) (30,470)
Decrease in capital lease obligation (13,545) 0
----------- -----------
Net cash provided by (used in) financing activities 1,972,750 1,638,303
----------- -----------
Net increase (decrease) in cash and cash equivalents (187,481) (95,228)
Effect of change in fiscal year-end (28,852) 0
Cash and cash equivalents at beginning of period 886,683 437,501
----------- -----------
Cash and cash equivalents at end of period $ 670,350 $ 342,273
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MERGER
On June 30, 1996, Network Long Distance, Inc. (Network), merged
with Long Distance Telecom, Inc. dba Blue Ridge Telephone (Blue Ridge) and in
connection therewith issued 337,058 shares of common stock for all of Blue
Ridge's common stock (the Merger). The Merger was accounted for as a
pooling-of-interests and, accordingly, the Network financial statements for
periods prior to the Merger have been restated to include the results of Blue
Ridge for all periods presented. Separate and combined results of operations
are as follows:
FOR THE THREE MONTHS
ENDED JUNE 30,
------------------------
1996 1995
--------- ----------
Revenues:
Network $8,974,588 $7,279,268
Blue Ridge 993,798 808,125
--------- ----------
Combined $9,968,386 $8,087,393
--------- ----------
--------- ----------
Income (loss) before income tax:
Network $ (32,470) $42,228
Blue Ridge 44,809 74,070
--------- ----------
Combined $ 12,339 $ 116,298
--------- ----------
--------- ----------
Prior to the Merger, Blue Ridge operated in the form of a partnership under
the name "Telecommunications Ventures Limited Partnership No. 1 T/A Blue Ridge
Telephone." On June 17, 1996, Blue Ridge changed to a corporate form of
organization. Blue Ridge did not recognize income tax expense for the periods
presented because its tax attributes flowed to its partners. The consolidated
statements of income include a pro forma adjustment to reflect a provision for
income taxes on a combined basis as if Blue Ridge had been subject to income
tax.
Prior to the Merger, Blue Ridge utilized a December 31 fiscal year end.
For purposes of the consolidated balance sheets, the March 31, 1996 and June
30, 1996 consolidated balance sheets of Network have been consolidated with
the balance sheets of Blue Ridge as of December 31, 1995 and June 30, 1996.
For the purposes of the consolidated statements of income and cash flows, the
results of Network for the three months ended June 30, 1996 and 1995 have
been combined with the results of Blue Ridge for the three months ended June
30, 1996 and March 31, 1995, respectively. The combined companies of Network
and Blue Ridge are hereinafter referred to as the "Company."
NOTE 2 - BASIS OF PRESENTATION
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 reclassification have been made to the balance sheet
dated March 31, 1996 in order to conform to the balance sheet dated June 30,
1996. 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. on
Form 10-K for the year ended March 31, 1996 and the supplemental financial
statements of Network Long Distance as filed in the Company's Form 8-K. The
results for the three months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending March 31,
1997.
NOTE 3 - ACQUISITIONS
In May 1996, the Company purchased substantially all of the customer
base of Universal Network Services, Inc. including the related accounts
receivable valued at $776,000 for approximately 243,750 shares of common
stock valued at approximately $1,825,000, and cash of approximately
$3,628,000. The Company has initially
-5-
<PAGE>
allocated approximately $2,100,000 to customer base and $2,600,000 to
goodwill with estimated useful lives of 7.5 years and 30 years, respectively.
The following represents the proforma results of operations of the Company
and Universal Network Services, Inc. for the three months ending June 30,
1996.
FOR THE THREE MONTHS ENDED
JUNE 30, 1996
-----------
Revenues $10,469,000
-----------
-----------
Net Income (Loss) 73,320
-----------
E.P.S. .02
-----------
The initial purchase price allocations for the fiscal year 1997
acquisitions were based on estimates as the Company is waiting for more
detailed information concerning the current values of certain assets. 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 4 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share was calculated based on the following
number of common and common equivalent shares outstanding: 3,702,447 and
2,706,994 for the three months ended June 30, 1996 and 1995, respectively.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the three months ended June 30, 1996 and 1995, interest paid
amounted to $105,089 and $5,584, respectively. Income taxes paid by the
Company during the three months ended June 30, 1996 and 1995 was $0 and
$125,000, respectively. No provision for income taxes was made by the Company
for the three month period ended June 30, 1996 since the Company had a loss
prior to reflecting the results of the acquisition of Blue Ridge Telephone which
itself was a taxable entity for only approximately 30 days during the period.
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 months ended June 30, 1996
and 1995 after giving effect to the merger with Long Distance Telecom, Inc., dba
Blue Ridge Telephone (Blue Ridge), which was accounted for as a pooling of
interests. The information should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto.
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical facts,
are forward-looking statements under the Private Securities Litigation Reform
Act of 1995 that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in the forward-looking
statements. Among the factors that could cause actual future results to differ
materially are competitive pressures, the timing and technique used in marketing
by third-party distributors and the market acceptance of certain services.
RESULTS OF OPERATIONS
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.
-6-
<PAGE>
For the first fiscal quarter of 1997, revenues, inclusive of excise taxes and
fees, were $9,968,386, compared to $8,087,393 for the first fiscal quarter of
1996, an increase of 23.3%. The rise in revenues reflects an overall increase
in long distance calling volume resulting from the enhanced sales efforts of the
Company's nationwide retail and agent marketing divisions; and from new calling
traffic generated by the Company's expanded acquisition program. Revenues from
the Company's wholesale division have declined due to management's effort to de-
emphasize this higher-risk segment.
Cost for telecommunications for the three months ended June 30, 1996 were
$6,896,811, representing approximately 69.2% of revenue, compared to $6,216,813,
representing 76.9% of revenue for the same period in 1995. This continues a
trend of steadily declining line costs and is a reflection of economies of scale
resulting from the increased calling volume from both internal sales and
acquisitions currently moving through the Company's recently expanded
infrastructure, as well as the reduction in the lower margin wholesale traffic.
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.
Selling, general and administrative expenses were $2,315,197 for the three
months ended June 30, 1996, representing 23.2% of revenue. This compares with
SG&A expense of $1,480,884 for the three months ended June 30, 1995,
representing 18.3% of revenues. This increase is a result of the Company
placing greater emphasis on the retail segment as opposed to the higher-risk,
lower-margin wholesale segment. In this increase were billing service fees of
$75,000, agent commissions of $340,000, state and local taxes of $200,000 and
merger related expenses of $100,000, offset by a reduction of salaries by
$100,000. In addition, the provision for bad debt increased by $160,000.
Depreciation and amortization expense was $384,910 for the three months ended
June 30, 1996, representing 3.9% or revenues. This is compared to $176,346, or
2.2% of revenue, for the same period in 1995. The increases in such expenses
were due primarily to depreciation of the additional equipment and amortization
of customer bases and goodwill resulting from acquisitions by the Company.
Net income for the three months ended June 30, 1996 was $12,339, compared to
$87,860 for the First fiscal quarter of 1996. This decrease in net income is
attributable to the rise in Selling, general and administrative expenses and
depreciation and amortization expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended June 30, 1996, the Company's cash flow provided by
operating activities was $931,711 compared to cash flow used in operating
activities of $1,182,646 for the three months ended June 30, 1995. The Company
made significant capital investments in the first three months of fiscal year
1997, resulting in cash used in investing activities of $3,091,942, compared to
$550,885 of cash used in investing activities for the three months ended June
30, 1995. These investments included customer base acquisitions, office
furniture and fixtures and leasehold improvements related to the Company's new
operations center. Included in investing activities is $764,363 of proceeds
from the sale of a DEX switch which is being leased back to the Company. The
Company has financed these capital expenditures and acquisitions by utilizing
its revolving line of credit.
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.
In May 1996, the Company entered into a $14,250,000 credit facility with a bank
which includes a revolving credit facility and term loan facility. Borrowings
under the revolving credit portion of the facility may not exceed the lessor of
$11,000,000 minus any reserves the lender may deem eligible or 85% of eligible
receivables. Borrowings under the revolver will bear interest at the prime
rate plus 0.75%. Borrowings and unpaid interest on the revolving facility are
repayable in full at maturity of the facility on June 1, 1999. The Company is
allowed to borrow $3,250,000 under the term loan facility. The term loan is
repayable in 36 equal monthly installments of $90,278 plus accrued interest.
The term loan will bear interest at the prime rate plus 3%. Substantially all
of the assets of the Company are pledged as collateral under the credit
facility. $3,953,878 was available as of June 30, 1996 on the line of credit.
-7-
<PAGE>
PART II
OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
Item 2: CHANGES IN SECURITIES
None
Item 3: DEFAULT UPON SENIOR SECURITIES
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 24, 1996 a meeting of the shareholders of the Company
was held in order to vote on the following matters:
Amend the Articles of Incorporation to increase the
Company's authorized Common Stock from 10,000,000
shares, $.0001 par value to 20,000,000 shares, $.0001
par value.
To elect Leon L. Nowalsky, Russell J. Page, Timothy J.
Sledz, and Dr. Joseph M. Edelman to the Board of
Directors.
To ratify the re-election of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year
ended March 31, 1997.
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND CURRENT REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Current reports on Form 8-K
During the quarter ended June 30, 1996, the Company filed a
current report on Form 8-K dated May 31, 1996, filed on June
4, 1996, reporting under Item 2 Acquisition or Disposition
of Assets. After the quarter ended June 30, 1996, the
Company filed the following current reports: Current report
on Form 8-K dated June 30, 1996 filed on July 8, 1996,
reporting under Item 2 Acquisition or Disposition Assets,
Current report on Form 8-K/A dated May 31, 1996 filed on
August 1, 1996, reporting under Item 7 Financial Statements,
and Current report on Form 8-K/A dated June 30, 1996 filed
on August 5, 1996, reporting under Item 7 Financial
Statements.
-8-
<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: , 1996 By: /s/Marc I. Becker
---------------------------------
Marc I. Becker, Executive Vice
President and Chief Operating Officer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 670
<SECURITIES> 0
<RECEIVABLES> 6760
<ALLOWANCES> 1377
<INVENTORY> 0
<CURRENT-ASSETS> 8629
<PP&E> 3605
<DEPRECIATION> 1729
<TOTAL-ASSETS> 24699
<CURRENT-LIABILITIES> 5385
<BONDS> 0
0
0
<COMMON> 14724
<OTHER-SE> 582
<TOTAL-LIABILITY-AND-EQUITY> 24699
<SALES> 9968
<TOTAL-REVENUES> 9968
<CGS> 9851
<TOTAL-COSTS> 9851
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 12
<INCOME-TAX> 5
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> 0
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</TABLE>
