SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 10 or 15(d) of the
Securities Exchange Act of 1934
September 16, 1996
------------------------------------------------
Date of Report (date of earliest event reported)
NETWORK LONG DISTANCE, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-23172 72-1122018
- --------------- ----------- -------------------
(State or Other (Commission (IRS Employer Iden-
Jurisdiction of File Number) tification Number)
Incorporation)
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)
Page 1 of 25.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited Financial Statements of United Wats, Inc.
Item 7(a)
UNITED WATS, INC.
FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995, 1994 and 1993
-2-
<PAGE>
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - -
To the Board of Directors
United Wats, Inc.
We have audited the balance sheets of
UNITED WATS, INC.
as of December 31, 1995 and 1994, and the related statements of income,
changes in stockholders' equity and cash flows for the years ended December
31, 1995, 1994 and 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of United
Wats, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994
and 1993 in conformity with generally accepted accounting principles.
Kansas City, Missouri
March 11, 1996
-3-
<PAGE>
UNITED WATS, INC.
BALANCE SHEETS
- - - - - - - -
December 31, 1995 and 1994
(Data with respect to June 30, 1996 are unaudited)
December 31, June 30,
------------------- --------
1995 1994 1996
------ ------ ------
(Unaudited)
A S S E T S
-----------
CURRENT ASSETS
Cash $ 5,889 $ 85,766 $ 395,147
Accounts receivable, trade, less
allowance for losses (1995,
$71,500; 1994, $6,500)
($71,500 at June 30, 1996) 2,379,463 501,993 3,069,690
Deposit - 100,000 -
Prepaid income taxes 79,227 - -
Prepaid expenses 5,443 - 5,090
--------- --------- ---------
TOTAL CURRENT ASSETS 2,470,022 687,759 3,469,927
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation 70,297 24,623 101,515
--------- --------- ---------
TOTAL ASSETS $2,540,319 $ 712,382 $3,571,442
========= ========= =========
L I A B I L I T I E S
---------------------
CURRENT LIABILITIES
Bank overdraft $ 29,269 $ - $ -
Accounts payable 1,330,630 87,824 1,880,775
Accrued excise taxes 196,686 - 267,890
Accrued expenses 63,189 107,407 281,870
Income taxes payable - 29,290 92,942
Deferred income taxes 374,528 118,921 364,854
Unearned promotional bonuses - 30,503 -
Notes payable, related parties - 100,000 -
Current portion of long-term debt,
related parties 56,105 90,513 -
--------- --------- ---------
TOTAL CURRENT LIABILITIES 2,050,407 564,458 2,888,331
--------- --------- ---------
LONG-TERM DEBT, RELATED PARTIES,
less current portion above - 56,261 -
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES - - -
--------- --------- ---------
S T O C K H O L D E R S' E Q U I T Y
--------------------------------------
CAPITAL CONTRIBUTED
Common stock 20,000 20,000 20,000
Additional paid-in capital 46,266 46,266 46,266
--------- --------- ---------
TOTAL CAPITAL CONTRIBUTED 66,266 66,266 66,266
RETAINED EARNINGS 515,936 117,687 709,135
TREASURY STOCK, at cost (92,290) (92,290) (92,290)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 489,912 91,663 683,111
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,540,319 $ 712,382 $3,571,442
========= ========= =========
See Notes to Financial Statements
-4-
<PAGE>
UNITED WATS, INC.
STATEMENTS OF INCOME
- - - - - - - - - - -
Years Ended December 31, 1995, 1994 and 1993
(Data with respect to June 30, 1996 and 1995 are unaudited)
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------------- ------------------
1995 1994 1993 1996 1995
------ ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE
Long-distance service $8,399,426 $ 475,095 $ - $7,045,510 $2,995,586
Delivery service 1,737,862 615,922 - 1,006,236 747,723
Commissions 288,417 1,276,972 641,060 172,742 161,043
Interest income 61,501 8,388 504 50,425 11,679
Other 732 - 624 26,036 9,400
--------- --------- --------- --------- ---------
TOTAL REVENUE 10,487,938 2,376,377 642,188 8,300,949 3,925,431
--------- --------- --------- --------- ---------
COSTS AND EXPENSES
Cost of sales, long
-distance service 6,300,031 216,749 - 5,199,197 2,133,112
Cost of sales,
delivery service 1,437,499 459,601 - 777,528 573,009
Cost of sales,
commissions - - 3,000 - -
Selling, general,
and administrative 2,002,926 1,201,976 599,531 1,919,899 904,883
Interest expense 20,543 34,783 15,335 1,852 11,052
Other - - - 100,000 -
--------- --------- --------- --------- ---------
TOTAL COSTS
AND EXPENSES 9,760,999 1,913,109 617,866 7,998,476 3,622,056
--------- --------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES 726,939 463,268 24,322 302,473 303,375
INCOME TAX EXPENSE 292,304 148,211 - 109,274 127,155
--------- --------- --------- --------- ---------
NET INCOME $ 434,635 $ 315,057 $ 24,322 $ 193,199 $ 176,220
========= ========= ========= ========= =========
NET INCOME PER
COMMON SHARE $ 2.63 $ 1.91 $ 0.14 $ 1.17 $ 1.07
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE>
UNITED WATS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - - - - - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995, 1994 and 1993
(Data with respect to June 30, 1996 are unaudited)
<TABLE>
<CAPTION>
Common Stock
$0.10 Par Value,
Authorized 200,000
Shares, Issued Treasury Stock
------------------ Additional -------------------
Number Paid-In Retained Number of
of Shares Amount Capital Earnings Shares Amount Total
--------- ------- ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 193,356 $ 19,336 $ 3,149 $ 41,772 - $ - $ 64,257
Issuance of common
stock 3,700 370 3,330 - - - 3,700
Treasury stock
purchased - - - - 90,344 (239,559) (239,559)
Net income - - - 24,322 - - 24,322
Dividends - - - (29,597) - - (29,597)
--------- --------- --------- --------- --------- --------- ---------
Balance,
December 31, 1993 197,056 19,706 6,479 36,497 90,344 (239,559) (176,877)
Retirement of
treasury stock (55,539) (5,554) (12,848) (128,867) (55,539) 147,269 -
Issuance of
common stock 58,483 5,848 52,635 - - - 58,483
Net income - - - 315,057 - - 315,057
Dividends - - - (105,000) - - (105,000)
--------- --------- --------- --------- --------- --------- ---------
Balance,
December 31, 1994 200,000 20,000 46,266 117,687 34,805 (92,290) 91,663
Dividends - - - (36,386) - - (36,386)
Net income - - - 434,635 - - 434,635
--------- --------- --------- --------- --------- --------- ---------
Balance,
December 31, 1995 200,000 20,000 46,266 515,936 34,805 (92,290) 489,912
Net income
(Unaudited) - - - 193,199 - - 193,199
--------- --------- --------- --------- --------- --------- ---------
Balance,
June 30, 1996
(Unaudited) 200,000 $ 20,000 $ 46,266 $ 709,135 34,805 $ (92,290) $ 683,111
========= ========= ========= ========= ========= ========== =========
</TABLE>
See Notes to Financial Statements
-6-
<PAGE>
UNITED WATS, INC.
STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - -
Years Ended December 31, 1995, 1994 and 1993
(Data with respect to June 30, 1996 and 1995 are unaudited)
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------------- -------------------
1995 1994 1993 1996 1995
------ ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 434,635 $ 315,057 $ 24,322 $ 193,199 $ 176,220
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities
Depreciation 35,109 24,973 21,976 15,000 12,355
Promotional bonuses - 73,825 13,179 - -
Increase (decrease)in
deferred income
taxes 255,607 118,921 - (9,674) 115,754
Decrease (increase)
in operating assets
Accounts receivable,
trade (1,680,784) (398,355) (39,375) (619,024) (1,288,473)
Deposit 100,000 50,000 690 - -
Prepaid income taxes (79,227) - - 79,227 (104,523)
Prepaid expenses (5,443) 9,700 (9,700) 353 (3,413)
Increase (decrease) in
operating liabilities
Accounts payable 1,242,806 83,756 (14,858) 550,145 1,223,985
Accrued expenses (44,218) 101,868 5,539 218,681 (99,323)
Income taxes payable (29,290) 29,290 - 92,942 (29,290)
Unearned promotional
bonuses (30,503) (193,501) 137,000 - (9,204)
--------- --------- --------- --------- ---------
NET CASH PROVIDED
BY (USED IN)
OPERATING
ACTIVITIES 198,692 215,534 138,773 520,849 (5,912)
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Investment in property
and equipment (80,783) (38,598) (18,623) (46,217) (47,222)
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance
of common stock - 58,483 3,700 - -
Proceeds (repayment)
of notes payable,
related parties (100,000) 100,000 - - -
Bank overdraft 29,269 - - (29,269) -
Net borrowing on
line of credit - - - - 105,000
Repayment of long-
term debt, related
parties (90,669) (208,789) (33,996) (56,105) (48,054)
Payment of dividends (36,386) (134,597) - - (12,500)
--------- --------- --------- --------- ---------
NET CASH PROVIDED
BY (USED IN)
FINANCING
ACTIVITIES (197,786) (184,903) (30,296) (85,374) 44,446
--------- --------- --------- --------- ---------
NET INCREASE
(DECREASE) IN
CASH (79,877) (7,967) 89,854 389,258 (8,688)
CASH, BEGINNING
OF PERIOD 85,766 93,733 3,879 5,889 85,766
--------- --------- --------- --------- ---------
CASH, END OF
PERIOD $ 5,889 $ 85,766 $ 93,733 $ 395,147 $ 77,078
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
-7-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(1) Summary of significant accounting policies
------------------------------------------
Nature of operations - The Company is engaged principally in the
direct sale of long-distance telephone services purchased by the
Company from long-distance telephone carriers. The Company also sells
delivery services purchased from outside providers. The Company
grants credit to its customers throughout the United States,
substantially all of whom are businesses and associations. In 1994
and 1993, the Company was engaged principally in the enrollment of
customers in long-distance telephone carriers' programs in exchange
for commissions and promotional bonuses.
Use of estimates - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of financial statements, and the reported
amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Depreciation - Depreciation is computed using the following
methods and estimated useful lives:
Estimated
Assets Methods Useful Lives
-------------------- ------------ -------------
Furniture and equipment Straight-line 5 - 7 years
Computers and software Straight-line 3 - 5 years
Leasehold improvements Straight-line Lease term
Revenue recognition, promotional bonuses - The Company enters
into long-term contracts with long-distance telephone carriers which
commit to usage levels over a period of time, enrolls customers in
these programs and receives commissions and promotional bonuses from
the carriers. Commission revenue, typically a percentage of long-
distance usage, is recognized on a straight-line basis over the term
of the contract. Adjustments, refunds, cancellation of promotional
bonuses and sales of the related rights and obligations are recognized
as they occur.
Income taxes - Effective October 1, 1994, the stockholders of the
Company revoked their election to be taxed under Subchapter S of the
Internal Revenue Code. Prior to this date, stockholders were
responsible for their share of taxes on corporate income. After this
date, the Company began providing deferred income taxes to reflect the
impact of temporary differences between the recorded amounts of assets
and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense was $20,764, $4,718 and $ - for the
years ended December 31, 1995, 1994 and 1993, respectively ($10,265
and $18,241 for the six months ended June 30, 1996 and 1995,
respectively).
-8-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(1) Summary of significant accounting policies (continued)
------------------------------------------
Unaudited interim financial statements - The accompanying
unaudited financial statements have been prepared in accordance with
generally accepted accounting principles and Rule 10.01 of Regulation
S-X. Accordingly, they do not include all of 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 a fair presentation have been included. Operating
results for the six month period ended June 30, 1996 are not
necessarily indicative of the results that will be expected for the
year ending December 31, 1996.
(2) Property and equipment
----------------------
December 31, June 30,
------------------- --------
1995 1994 1996
------ ------ ------
(Unaudited)
Cost
Furniture and equipment $ 29,369 $ 14,999 $ 51,331
Computers and software 127,958 72,578 155,287
Leasehold improvements 10,815 - 7,742
--------- --------- ---------
Total cost 168,142 87,577 214,360
Accumulated depreciation (97,845) (62,954) (112,845)
--------- --------- ---------
Net property and equipment $ 70,297 $ 24,623 $ 101,515
========= ========= =========
The aggregate depreciation charged to operations for the years
ended December 31, 1995, 1994 and 1993 was $35,109, $24,973 and
$21,976, respectively ($15,000 and $12,355 for the six months ended
June 30, 1996 and 1995, respectively).
(3) Line of credit
--------------
The Company has a $750,000 line of credit available, due October
31, 1996, with interest at 1% over prime. The line is collateralized
by substantially all assets of the Company. As of December 31, 1995
and 1994, the Company had drawn $0 on this line of credit ($ - at June
30, 1996).
-9-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(4) Notes payable, related parties
------------------------------
December 31, June 30,
------------------- --------
1995 1994 1996
------ ------ ------
(Unaudited)
9% notes due to stockholders,
collateralized by security
deposit with one of the Company's
vendors, payable in monthly
installments of $750 including
interest, with the final balloon
payment due September 1995. $ - $ 100,000 $ -
========= ========= =========
(5) Long-term debt, related parties
-------------------------------
December 31, June 30,
------------------- --------
1995 1994 1996
------ ------ ------
(Unaudited)
8% notes due to previous
stockholders, collateralized by
security interest in treasury
stock, payable in quarterly
installments of $21,506 including
interest, with the final payment
due June 1996. $ 56,105 $ 133,867 $ -
Unsecured 8% notes due to
stockholders, with the final
payment due January 1995. - 12,907 -
--------- --------- ---------
Total long-term debt 56,105 146,774 -
Less: Current portion 56,105 90,513 -
--------- --------- ---------
Noncurrent portion $ - $ 56,261 $ -
========= ========= =========
For these financial instruments, the carrying value is a reasonable
estimate of fair value.
(6) Income taxes
------------
Income tax expense was computed as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------ ------------------
1995 1994 1993 1996 1995
------ ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax expense at statutory
Federal rate of 34% $ 247,159 $ 157,511 $ 8,269 $ 102,841 $ 103,148
State tax expense 43,616 27,796 1,459 18,148 18,203
Effect of S Corporation
status - - (9,728) - -
Effect of revocation of
S Corporation status - (26,280) - - -
Other 1,529 (10,816) - (11,715) 5,804
--------- --------- --------- --------- ---------
Total income tax
expense 292,304 148,211 - 109,274 127,155
Less deferred tax expense
(benefit) 255,697 118,921 - (9,674) 115,754
--------- --------- --------- --------- ---------
Total current tax
expense $ 36,607 $ 29,290 $ - $ 118,948 $ 11,401
========= ========= ========= ========= =========
</TABLE>
-10-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(6) Income taxes (continued)
------------
The significant temporary differences and their related deferred tax
asset (liability) balances are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------- ----------
1995 1994 1993 1996
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Accounts payable $ 532,252 $ 35,130 $ - $ 752,310
Accrued expenses 25,187 23,265 - 112,748
Unearned bonuses - 12,201 - -
--------- --------- --------- ---------
Subtotal 557,439 70,596 - 865,058
--------- --------- --------- ---------
Accounts receivable (929,790) (189,517) - (1,227,876)
Prepaids (2,177) - - (2,036)
--------- --------- --------- ---------
Subtotal (931,967) (189,517) - (1,229,912)
--------- --------- --------- ---------
Total deferred
income taxes $(374,528) $(118,921) $ - $ (364,854)
========= ========= ========= =========
</TABLE>
Deferred income taxes are classified as a current liability on
the balance sheet.
(7) Operating leases
----------------
The Company leases its office facility and certain equipment
under operating leases.
Future minimum rental payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of
one year as of December 31, 1995 are as follows:
Years Ending December 31,
------------------------
1996 $ 71,122
1997 27,059
1998 1,101
---------
Total $ 99,282
=========
Total rental expense for operating leases with a term in excess
of one month was $74,251, $40,073 and $31,368 for the years ended
December 31, 1995, 1994 and 1993, respectively ($46,512 and $27,177
for the six months ended June 30, 1996 and 1995, respectively).
(8) Profit Sharing Plan
-------------------
In 1995, the Company had a 401(k) profit sharing plan into which
employees could make tax deferred contributions ranging from 1% to 15%
of their eligible compensation. The Company matched 25% of the first
6% of each employee's contribution and could make additional
discretionary contributions as well. Total profit sharing expense was
$7,689 for the year ended December 31, 1995.
-11-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANICAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(9) Commitments and contingencies
-----------------------------
In August 1995, the Company entered into a contract commitment to
purchase long-distance service from Sprint Communication Company, L.P.
for a period of two years from the date of first usage (October 1995).
The Company's future usage commitments as of December 31, 1995
are as follows:
Months after Carrier Transport Net
December 31, Monthly Usage Commitment
1995 --------------------------
------------
1 $700,000
2 - 4 $800,000
5 - 6 $900,000
7 - 20 $1,000,000
The Company is committed to pay the greater of the actual charges
for services or the Carrier Transport Net Monthly Usage Commitment.
Total future minimum usage commitments under this agreement at
December 31, 1995 are as follows:
1996 $ 10,900,000
1997 8,000,000
------------
Total $ 18,900,000
============
In February, 1995 the Company entered into a contract commitment
to purchase long-distance service from MCI Telecommunications
Corporation for a period of three years from the date of first usage
(March 15, 1995). The Company is committed to pay the greater of the
actual charges for services or the Carrier Transport Net Monthly Usage
Commitment.
Total future minimum usage commitments under this agreement at
December 31, 1995 are as follows:
1996 $ 600,000
1997 600,000
1998 150,000
------------
Total $ 1,350,000
============
At December 31, 1995, the Company had unused standby letters of
credit totaling $20,000 expiring January 30, 1997. These letters of
credit are used as collateral for shipping services.
-12-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(10) Industry segments
-----------------
The Company's operations have been classified into three business
segments - direct sale of long-distance telephone services and
delivery services, and long-distance commission programs. Summarized
financial information by business segment is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------
Long- Commissions
Distance Delivery Programs Corporate
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $8,399,426 $1,737,862 $ 288,417 $ 62,233
Operating income 531,507 114,224 39,518 -
Identifiable assets, net 1,714,263 734,684 85,483 5,889
Capital expenditures 56,642 24,141 - -
Depreciation 24,576 10,533 - -
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
---------------------------------------------------
Long- Commissions
Distance Delivery Programs Corporate
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 475,095 $ 615,922 $1,276,972 $ 8,388
Operating income 98,242 127,363 264,058 -
Identifiable assets, net 299,855 128,509 198,252 85,766
Capital expenditures 27,019 11,579 - -
Depreciation 5,827 7,492 11,654 -
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
---------------------------------------------------
Long- Commissions
Distance Delivery Programs Corporate
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ 641,060 $ 1,128
Operating income - - 38,529 -
Identifiable assets, net - - 335,189 93,733
Capital expenditures - - 18,623 -
Depreciation - - 21,976 -
</TABLE>
(11) Significant customers
---------------------
Revenue produced by the Company's customers which exceeded 10% of
the Company's revenues for the years ended December 31, 1994 and 1993
was as follows (there were no significant customers in 1996 or 1995):
<TABLE>
<CAPTION>
Amount Percent
----------------------- -----------------------
1994 1993 1994 1993
------- ------ ------- -------
<S> <C> <C> <C> <C>
AT&T $ 589,883 $ 91,746 25% 14%
MCI Telecommunications
Corporation 382,617 - 16% - %
Sprint Communication
Company, L.P. 294,929 - 12% - %
</TABLE>
-13-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(12) Earnings per share
------------------
Net income per share is based on the weighted average number of
shares outstanding. The number of average shares outstanding used in
the calculation was 165,195, 165,035 and 171,896 for the years ended
December 31, 1995, 1994 and 1993, respectively (165,195 for the six
months ended June 30, 1996 and 1995).
(13) Dividends per common share
--------------------------
Dividends per common share, based on the current equivalent
number of common shares outstanding at the time of the dividend, were
$0.22, $0.64, and $0.28 in the years ended December 31, 1995, 1994 and
1993, respectively ($0.00 and $0.08 for the six months ended June 30,
1996 and 1995, respectively).
(14) Litigation
----------
The Company is involved in a legal matter wherein the outcome is
not readily determinable. Management believes that losses, if any,
from such matters would not have a material impact on the Company's
financial statements.
(15) Events (unaudited) subsequent to the date of the independent auditors'
--------------------------------------------------------------------
report
------
Management settled the legal matter discussed in Note 14
subsequent to the date of the independent auditors' report. The
Company accrued $100,000 at June 30, 1996 and paid the full amount in
July, 1996.
Management signed a letter of intent in September, 1996 to merge
with a publicly traded company, an event subsequent to the date of the
independent auditors' report.
-14-
<PAGE>
UNITED WATS, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(Data with respect to June 30, 1996 and 1995 are unaudited)
(16) Cash flow disclosures
---------------------
Cash consists of cash on hand and demand deposit accounts. The
following is a summary of supplemental cash flow information:
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------ ------------------
1995 1994 1993 1996 1995
------ ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid:
Interest $ 21,129 $ 30,103 $ 16,945 $ 1,852 $ 11,053
========= ========= ========= ========= =========
Income taxes $ 65,897 $ - $ - $ 26,006 $ 115,924
========= ========= ========= ========= =========
</TABLE>
Summary of noncash investing and financing activities:
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, ended June 30,
----------------------------- --------------------
1995 1994 1993 1996 1995
------ ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Obtaining deposit in
exchange for note
payable, related
parties $ - $ - $150,000 $ - $ -
Promotional bonus
credits received - 12,972 74,032 - -
Debt issued in exchange
for treasury stock - - 239,559 - -
Dividends declared but
not paid - - 29,597 - -
Retirement of treasury
stock - 147,269 - - -
</TABLE>
-15-
<PAGE>
(b) Pro Forma Financial Information.
Item 7(b)
PRO FORMA COMBINING FINANCIAL STATEMENTS
The following unaudited Pro Forma Combining Balance Sheet as of June 30,
1996, and unaudited Pro Forma Combining Income Statements for the three
months ended June 30, 1996 and 1995, and years ended March 31, 1996 and
1995, illustrate the effect of a proposed merger with United Wats, Inc.
(United Wats) and the acquisition of a segment of the customer base and
related accounts receivable of Universal Network Services, Inc. (UniNet) as
of May 31, 1996. Network Long Distance, Inc. (the Company) signed a letter
of intent to merge with United Wats on September 10, 1996. When
consummated, the Company expects to issue approximately 1,860,000 shares of
common stock for all of the outstanding shares of United Wats in a
transaction accounted for as a pooling-of-interests. The Company acquired
the UniNet customer base and accounts receivable for cash of approximately
$3,628,000 and the issuance of approximately 244,000 shares of restricted
common stock, of which approximately 49,000 shares are held in escrow, in
a transaction accounted for as a purchase of a business. The United Wats
and UniNet acquisitions are collectively referred to as the Acquisitions.
The Pro Forma Combining Balance Sheet assumes that the Acquisitions
occurred on the date the balance sheet is presented. The Pro Forma
Combining Income Statements assume that the Acquisitions occurred at the
beginning of the earliest period presented.
United Wats, prior to the proposed merger, and UniNet, prior to the
purchase, utilized a December 31 fiscal year end. For purposes of the Pro
Forma Combining Financial Statements for the years ended March 31,1 996 and
1995, United Wats and UniNet amounts reflect historical results of
operations for these entities for the years ended December 31, 1995 and
1994. For purposes of the Pro Forma Combining Financial Statements for the
three months ended June 30, 1995, United Wats and UniNet amounts reflect
historical results of operations for these entities for the three months
ended March 31, 1995. The Pro Forma Combining Financial Statements for the
three months ended June 20, 1996, reflect a change in fiscal year end to
March 31, for United Wats and UniNet. As a result, the Pro Forma Combining
Financial Statements for the three months ended June 30, 1996, represent
historical results of operations for United Wats and UniNet for the three
months ended June 30, 1996.
The Pro Forma Combining Financial Statements are presented for comparative
purposes only and are not intended to be indicative of actual results had
the transaction occurred as of the dates indicated above nor do they
purport to indicate results which may be attained in the future.
-16-
<PAGE>
PRO FORMA COMBINING BALANCE SHEET <F1>
As of June 30, 1996
<TABLE>
<CAPTION>
Network/
United Wats
Network United Wats Pro Forma Pro Forma
Historical Historical Adjustments Combined
<F2> <F3>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets $ 8,629,031 $3,469,927 $ - $12,098,958
Property and equipment,
net 1,875,234 101,515 - 1,976,749
Customer acquisition costs,
net 8,426,456 - - 8,426,456
Goodwill, net 4,667,635 - - 4,667,635
Other intangibles, net 362,558 - - 362,558
Other assets 738,019 - - 738,019
---------- ---------- ---------- ----------
Total assets $24,698,933 $ 3,571,442 $ - $28,270,375
========== ========== ========== ==========
Current liabilities $ 5,384,989 $ 2,888,331 $ - $ 8,273,320
Deferred Tax Liability 58,201 - - 58,201
Long-term debt 3,860,574 - - 3,860,574
Capital lease obligation 89,109 - - 89,109
Stockholders' equity:
Series A preferred stock - - - -
Common stock 449 20,000 (19,814)<F4> 635
Additional paid-in
capital 14,723,965 46,266 19,814<F4> 14,790,045
Retained earnings 581,646 709,135 - 1,290,781
Treasury Stock - (92,290) - (92,290)
---------- ---------- ---------- ----------
Total stockholders'
equity 15,306,060 683,111 - 15,989,171
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $24,698,933 $ 3,571,442 $ - $28,270,375
========== ========== ========== ==========
</TABLE>
-17-
<PAGE>
PRO FORMA COMBINING INCOME STATEMENT <F1>
For the Three Months Ended June 30, 1996
<TABLE>
<CAPTION>
Network/
Network/ UniNet
UniNet United Wats
Network UniNet Pro Forma Pro Forma United Wats Pro Forma Pro Forma
Historical Historical Adjust- Combined Historical Adjust- Combined
<F5> <F6> ments <F10> ments
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $9,968,386 $2,375,000 $(791,659) <F7> $11,551,727 $4,422,175 $ - $15,973,902
Operating expenses:
Telecommunications
costs 6,896,811 1,775,000 (591,661) <F7> 8,080,150 3,299,127 - 11,379,277
Selling, general
and administrative 2,315,197 827,000 - <F7> 3,142,197 855,323 - 3,997,520
Provision for losses
on accounts
receivable 384,910 49,000 (16,333) <F7> 417,577 - - 417,577
Depreciation and
amortization 254,040 148,000 (148,000) <F7> 345,025 7,500 - 352,525
90,985 <F8>
--------- --------- --------- --------- --------- --------- ---------
Total 9,850,958 2,799,000 (665,009) 11,984,949 4,161,950 - 16,146,899
--------- --------- --------- --------- --------- --------- ---------
Operating income(loss) 117,428 (424,000) (126,650) (433,222) 260,225 - (172,997)
Interest income
(expense), net (105,089) 76,000 (76,000) <F7> (191,254) 23,003 - (168,251)
(86,165) <F9>
Other income (expense) - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes 12,339 (348,000) (288,815) (624,476) 283,228 - (341,248)
Provision for
income taxes - - - <F11> - 106,688 - 106,688
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) 12,339 (348,000) (288,815) (624,476) 176,540 - (447,936)
Pro forma income
tax adjustment 4,700 - - 4,700 - - 4,700
--------- --------- --------- --------- --------- --------- ---------
$ 7,639 $(348,000) $(288,815) $(629,176) $ 176,540 $ - $(452,636)
========= ========= ========= ========= ========= ========= =========
Number of shares issued
and outstanding <F12>:
Primary 3,702,447 3,897,453 5,757,918
========= ========= ==========
Fully Diluted 3,702,447 3,897,453 5,757,918
========= ========= ==========
Earnings per share:
Primary $0.00 $(0.16) $(0.08)
========= ========= ==========
Fully Diluted $0.00 $(0.16) $(0.08)
========= ========= ==========
Pro forma earnings
per share:
Primary $0.00 $(0.16) $(0.08)
========= ========= ==========
Fully Diluted $0.00 $(0.16) $(0.08)
========= ========= ==========
</TABLE>
-18-
<PAGE>
PRO FORMA COMBINING INCOME STATEMENT <F1>
For the Three Months Ended June 30, 1995
<TABLE>
<CAPTION>
Network/
Network/ UniNet
UniNet United Wats
Network UniNet Pro Forma Pro Forma United Wats Pro Forma Pro Forma
Historical Historical Adjust- Combined Historical Adjust- Combined
<F10> ments <F10> ments
-------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,087,393 $1,580,000 $(526,661) <F7> $ 9,140,732 $1,235,525 $ - $10,376,257
Operating expenses:
Telecommunications
costs 6,216,813 1,292,100 (430,696) <F7> 7,078,217 738,489 - 7,816,706
Selling, general
and administrative 1,480,884 1,096,700 - <F7> 2,577,584 295,457 - 2,873,041
Provision for losses
on accounts
receivable 176,346 156,600 (52,195) <F7> 280,751 - - 280,751
Depreciation and
amortization 92,746 206,200 (206,200) <F7> 183,731 6,178 - 189,909
90,985 <F8>
--------- --------- --------- --------- --------- --------- ---------
Total 7,966,789 2,751,600 (598,106) 10,120,283 1,040,124 - 11,160,407
--------- --------- --------- --------- --------- --------- ---------
Operating income(loss) 120,604 (1,171,600) 71,445 (979,551) 195,401 - (784,150)
Interest income
(expense), net (8,248) (104,900) 104,900 <F7> (94,393) (13,557) - (107,950)
(86,145) <F9>
Other income (expense) 3,942 - - 3,942 4,798 - 8,740
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes 116,298 (1,276,500) 90,200 (1,070,002) 186,642 - (883,360)
Provision for
income taxes 28,438 800 (800) <F11> 28,438 78,226 - 106,664
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) 87,860 (1,277,300) 91,000 (1,098,440) 108,416 - (990,024)
Pro forma income
tax adjustment 28,887 - - 28,887 - - 28,887
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income
(loss) $ 58,973 $(1,277,300) $ 91,000 $(1,127,327) $ 108,416 $ - $(1,018,911)
========= ========= ========= ========= ========= ========= =========
Number of shares issued
and outstanding <F12>:
Primary 2,706,994 2,902,000 4,762,465
========= ========= =========
Fully Diluted 2,706,994 2,902,000 4,762,465
========= ========= =========
Earnings per share:
Primary $0.03 $(0.38) $(0.21)
========= ========= =========
Fully Diluted $0.03 $(0.38) $(0.21)
========= ========= ==========
Pro forma earnings
per share:
Primary $0.02 $(0.39) $(0.21)
========= ========= =========
Fully Diluted $0.02 $(0.39) $(0.21)
========= ========= =========
</TABLE>
-19-
<PAGE>
PRO FORMA COMBINING INCOME STATEMENT <F1>
For the Twelve Months Ended March 31, 1996
<TABLE>
<CAPTION>
Network/
Network/ UniNet
UniNet United Wats
Network UniNet Pro Forma Pro Forma United Wats Pro Forma Pro Forma
Historical Historical Adjust- Combined Historical Adjust- Combined
<F10> ments <F10> ments
--------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $34,273,486 $9,307,000 $(3,102,302) <F7> $40,478,184 $10,425,705 $ - $50,903,889
Operating expenses:
Telecommunications
costs 24,810,691 10,888,500 (3,629,464) <F7> 32,069,727 7,737,530 - 39,807,257
Selling, general
and administrative 7,133,456 5,055,300 - <F7> 12,188,756 1,902,817 - 14,091,573
Provision for losses
on accounts
receivable 1,047,151 489,100 (163,017) <F7> 1,373,234 65,000 - 1,438,234
Depreciation and
amortization 1,211,717 815,000 (815,000) <F7> 1,575,655 35,109 - 1,610,764
363,938 <F8>
--------- --------- --------- --------- --------- --------- ---------
Total 34,203,015 17,247,900 (4,243,543) 47,207,372 9,740,456 - 56,947,828
--------- --------- --------- --------- --------- --------- ---------
Operating income 70,471 (7,940,900) 1,141,241 (6,729,188) 685,249 - (6,043,939)
Interest income
(expense), net (239,855) (451,700) 451,700 <F7> (584,515) (20,543) - (605,058)
(344,660) <F9>
Other income (loss) 40,215 (305,300) 305,300 <F7> 40,215 62,233 - 102,448
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes (129,169) (8,697,900) 1,553,581 (7,273,488) 726,939 - (6,546,549)
Provision for
income taxes (69,031) 20,000 (20,000) <F11> (69,031) 292,304 - 223,273
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) (60,138) (8,717,900) 1,573,581 (7,204,457) 434,635 - (6,769,822)
Pro forma income
tax adjustment 126,375 - - 126,375 - - 126,375
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income
(loss) $(186,513) $(8,717,900) $1,573,581 $(7,330,832) $ 434,635 $ - $(6,896,197)
========= ========= ========= ========= ========= ========= =========
Number of shares issued
and outstanding <F12>:
Primary 3,068,151 3,263,157 5,123,622
========= ========= =========
Fully Diluted 3,068,151 3,263,157 5,123,622
========= ========= =========
Earnings per share:
Primary $(0.02) $(2.21) $(1.32)
========= ========= =========
Fully Diluted $(0.02) $(2.21) $(1.32)
========= ========= =========
Pro forma earnings
per share:
Primary $(0.06) $(2.25) $(1.35)
========= ========= =========
Fully Diluted $(0.06) $(2.25) $(1.35)
========= ========= =========
</TABLE>
-20-
<PAGE>
PRO FORMA COMBINING INCOME STATEMENT <F1>
For the Twelve Months Ended March 31, 1995
<TABLE>
<CAPTION>
Network/
Network/ UniNet
UniNet United Wats
Network UniNet Pro Forma Pro Forma United Wats Pro Forma Pro Forma
Historical Historical Adjust- Combined Historical Adjust- Combined
<F10> ments <F10> ments
--------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $27,006,864 $4,170,300 $(1,390,086) <F7> $29,787,078 $2,367,989 $ - $32,155,067
Operating expenses:
Telecommunications
costs 21,147,295 2,543,000 (847,658) <F7> 22,842,637 676,350 - 23,518,987
Selling, general
and administrative 4,481,600 2,251,400 - <F7> 6,733,000 1,170,503 - 7,903,503
Provision for losses
on accounts
receivable 396,814 327,400 109,122 <F7> 833,336 6,500 - 839,836
Depreciation and
amortization 371,688 864,500 (864,500) <F7> 735,626 24,973 - 760,599
363,938 <F8>
--------- --------- --------- --------- --------- --------- ---------
Total 26,397,397 5,986,300 (1,239,098) 31,144,599 1,878,326 - 33,022,925
--------- --------- --------- --------- --------- --------- ---------
Operating income 609,467 (1,816,000) (150,988) (1,357,521) 489,663 - (867,858)
Interest income
(expense), net 91,875 (230,200) 230,200 <F7> (252,786) (34,783) - (287,569)
(344,661) <F9>
Other income (expense) (30,142) (1,338,700) 1,338,700 <F7> (30,142) 8,388 - (21,754)
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes 671,200 (3,384,900) 1,073,251 (1,640,449) 463,268 - (1,177,181)
Provision for
income taxes 118,743 8,000 (8,000) <F11> 118,743 148,211 - 266,954
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) 552,457 (3,392,900) 1,081,251 (1,759,192) 315,057 - (1,444,135)
Pro forma income
tax adjustment 28,685 - - 28,685 - - 28,685
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income
(loss) $ 523,772 $(3,392,900) $1,081,251 $(1,787,877) $ 315,057 $ - $(1,472,820)
========= ========= ========= ========= ========= ========= =========
Number of shares issued
and outstanding <F12>:
Primary 2,708,057 2,903,063 4,763,528
========= ========= =========
Fully Diluted 2,708,057 2,903,063 4,763,528
========= ========= =========
Earnings per share
Primary $0.20 $(0.61) $(0.30)
========= ========= =========
Fully Diluted $0.20 $(0.61) $(0.30)
========= ========= =========
Pro forma earnings
per share:
Primary $0.19 $(0.62) $(0.31)
========= ========= =========
Fully Diluted $0.19 $(0.62) $(0.31)
========= ========= =========
</TABLE>
-21-
<PAGE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
1. The adjustments to the unaudited Pro Forma Combining Financial
Statements do not give effect to direct transaction costs or any
resulting restructuring costs associated with the consummation of the
Acquisitions nor do these statements give effect to any potential
costs savings and synergies that could result from the Acquisitions.
The unaudited Pro Forma Combining Financial Statements are not
necessarily indicative of the operating results or financial position
that would have occurred had the Acquisitions been consummated at the
dates indicated nor necessarily indicative of future operating results
or financial position.
2. Represents the historical carrying value of the assets and liabilities
of Network as of June 30, 1996 which includes the effects of the
purchase of UniNet effective May 31, 1996.
3. Represents the historical carrying value of the assets and liabilities
of United Wats as of June 30, 1996.
4. These adjustments represent the restatement of common stock and
additional paid in capital to reflect the merger of the Company with
United Wats. The Company expects to issue approximately 1,860,000
shares of common stock in connection with the merger.
5. Represents the historical results of operations of the Company for the
three months ended June 30, 1996, which includes the results of
operations of UniNet for the month of June 1996 because the UniNet
acquisition was not effective until May 31, 1996.
6. Represents the historical results of operations of UniNet for April
and May 1996.
7. Represents the elimination of UniNet's revenue and expenses for that
portion of the business not acquired by the Company. The Company
purchased a portion of UniNet's customer base which accounts for
approximately 67% of UniNet's monthly revenues and telecommunications
costs at the time of the acquisition. For purposes of the Pro Forma
Combining Financial Statements, the Company has assumed that certain
selling, general and administrative costs are directly attributable to
the customer base, and as such, are reflected as acquired by the
Company. The Company has estimated that the same percentage of
revenues and direct costs purchased is applicable for all periods
presented.
8. Represents the amortization expense of the incremental excess of cost
over net tangible assets acquired which is amortized using the
straight-line method over 7.5 and 30 years, respectively, for the
excess allocated to customer acquisition costs and goodwill.
-22-
<PAGE>
9. This adjustment represents the interest expense on the borrowings from
the Company's credit facility to pay the cash portion of the UniNet
purchase price. The Company's incremental borrowing rate on the
credit facility is prime plus one. For purposes of the Pro Forma
Combining Income Statements, the Company is assuming an annual rate of
9.5% for all periods presented.
10. Represents the historical results of operations of the applicable
entity for the period presented. Prior to the proposed merger of
United Wats and the purchase of UniNet these entities utilized a
December 31 fiscal year end. For purposes of the Pro Forma Combining
Financial Statements for the years ended March 31, 1996 and 1995, the
United Wats and UniNet amounts reflect historical results of
operations for these entities for the years ended December 31, 1995
and 1994. For purposes of the Pro Forma Combining financial
Statements for the three months ended June 30, 1995, the United Wats
and UniNet amounts reflect historical results of operations for these
entities for the three months ended March 31, 1995.
11. This adjustment eliminates the taxes previously recorded by UniNet.
For purposes of the Pro Forma Combining Financial Statements, no
additional tax benefit will be reflected for the losses sustained by
the UniNet operation.
12. The pro forma share data are based on the Company's historical
weighted average shares outstanding as calculated for primary and
fully diluted earnings per share with pro forma amounts being adjusted
to reflect the effect of the issuance of approximately 195,000
restricted common shares in connection with the UniNet acquisition and
1,860,000 restricted common shares in connection with the proposed
United Wats acquisition. Pro forma share data excludes approximately
49,000 common shares held in escrow as part of the UniNet acquisition
because these shares are not considered as part of the purchase price.
-23-
<PAGE>
(c) Exhibits: Filed herewith pursuant to Reg. S-K Item 601 is
the following exhibit.
EXHIBIT NO. DESCRIPTION
----------- -----------
1 Letter of Intent between the Registrant and
United Wats, Inc., dated September 16,
1996.*
* previously filed.
-24-
<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 hereunto duly authorized.
NETWORK LONG DISTANCE, INC.
Dated: November 11, 1996 By: /s/ MARC I. BECKER
-----------------------------
Marc I. Becker,
Executive Vice President
-25-
