<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 December 31, 1995.
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 Identi-
Incorporation or Organization) fication 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 3,883,927 shares of the Registrant's $.0001 par value common stock
issued and outstanding as of December 31, 1995.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1995 and December 31, 1994. . . . . . . . . . . . . 2
Consolidated Statements of Income
Six months and nine months ended December 31, 1995 and 1994. . . 3
Consolidated Statements of Cash Flows
Nine months ended December 31, 1995 and 1994 . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . . . 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 7-9
PART II - OTHER INFORMATION
Exhibits and Current Reports on Form 8-K. . . . . . . . . . . . . . 10
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31,
UNAUDITED 1995
----------------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 641,693 $ 348,753
Securities purchased under agreement to
resell - 1,558,562
Accounts receivable, net of allowance for
doubtful accounts of $690,148 and $499,546
at December 31, 1995, and March 31, 1995
respectively 7,454,836 4,123,954
Deferred income tax asset 75,723 42,231
Other current assets 424,606 37,801
----------- -----------
Total current assets 8,596,858 6,111,301
Property and equipment
Land 75,000 75,000
Building and improvements 626,440 382,315
Telecommunications equipment 1,715,048 1,640,315
Furniture and fixtures 1,175,803 671,640
----------- -----------
3,592,291 2,769,270
Less accumulated depreciation 1,311,528 968,766
----------- -----------
2,280,763 1,800,504
Intangibles, net 10,933,686 1,883,997
Other assets 580,547 361,005
----------- -----------
Total assets $22,391,854 $10,156,807
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current maturities of
long-term debt $ 139,551 $ -
Accounts payable 515,877 871,893
Accrued telecommunications cost 2,134,071 1,481,409
Other accrued liabilities 538,958 500,428
Customer deposits 173,960 183,185
----------- -----------
Total current liabilities 6,489,302 3,036,915
Deferred income tax liability 50,538 16,476
Series A convertible preferred stock - $0.01
par value; 25,000,000 shares authorized;
no shares issued and outstanding at
December 31, 1995, and March 31, 1995 -
Stockholders' equity
Common stock - $.0001 par value;
10,000,000 shares authorized; 3,883,927
and 2,992,106 shares issued and outstanding
at December 31, 1995 and March 31, 1995,
respectively 388 299
Additional paid-in capital 15,167,538 6,483,025
Retained earnings 684,088 620,092
----------- -----------
Total stockholders' equity 15,852,014 7,103,416
----------- -----------
Total liabilities and stockholders' equity $22,391,854 $10,156,807
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (including excise taxes $7,372,526 $6,379,882 $21,596,786 $17,076,362
of $125,963 and $58,231 for the three
months ended December 31, 1995 and
1994, respectively, and $249,840 and
$159,250 for the nine months ended
December 31, 1995 and 1994,
respectively)
Operating expenses:
Telecommunications costs 5,221,804 5,183,269 16,219,234 13,708,855
Selling, general and administrative 1,700,414 999,268 4,448,786 2,689,807
Depreciation and amortization 354,701 82,600 711,775 227,992
---------- ---------- ----------- -----------
Total 7,276,919 6,265,137 21,379,795 16,626,654
---------- ---------- ----------- -----------
Operating income 95,607 114,745 216,991 449,708
Interest (income) expense, net 58,418 (55,804) 98,672 (113,602)
---------- ---------- ----------- -----------
Income before income taxes 37,189 170,549 118,319 563,310
Provision for income taxes 13,356 84,757 54,325 231,412
---------- ---------- ----------- -----------
Net income 23,833 85,792 63,994 331,898
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per common share:
Net income $ .01 $ .04 $ .02 $ .14
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended December 31,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 63,994 $ 331,898
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 347,762 205,128
Amortization 358,381 22,864
Provision for losses on accounts receivable 115,917 343,111
Provision (benefit) for deferred income taxes (42,460) 112,532
Provision for employee stock incentive plan 38,064 18,828
Changes in assets and liabilities, net of
effect of business combinations:
Accounts receivable (1,337,269) (1,458,893)
Other current assets (386,804) (1,411,470)
Accounts payable and other current liabilities 560,582 2,384,014
----------- -----------
Net cash provided by (used in) operating activities (281,833) 548,012
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,593,024) (418,559)
Sale of short-term investments, net 1,558,562 -
Acquisition and related costs (2,219,256) (1,799,696)
Increase in other intangible assets (158,394) -
----------- -----------
Net cash used in investing activities (2,412,112) (2,218,255)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 8,733,654 -
Principal payments on debt (5,746,769) (42,005)
Redemption of preferred stock - (55,527)
Loan to other entities - (63,846)
----------- -----------
Net cash provided by (used in) financing activities 2,986,885 (161,378)
----------- -----------
Net increase in cash and cash equivalents 292,940 (1,831,621)
Cash and cash equivalents at beginning of period 348,753 4,624,783
----------- -----------
Cash and cash equivalents at end of period $ 641,693 $ 2,793,162
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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 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 nine months ended December 31, 1995, are not necessarily indicative
of the results that may be expected for the year ending March 31, 1996.
NOTE 2 - ACQUISITIONS
The Company has completed a series of acquisitions of portions
of other long distance providers' customer base and related accounts
receivables, as well as an acquisition of substantially all of the assets of
another long distance provider. Such acquisitions have been financed
primarily with cash, shares of the Company's common stock, forgiveness of
debt owed to the Company, or a combination thereof. All acquisitions have
been recorded under the purchase method of accounting 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 Texas.
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, approximately 7,300 shares of common stock valued at
$55,000, and $192,500 in notes payable. Of the assets acquired,
approximately $418,000 was recorded as the purchase price of the customer
base, which is located in Oklahoma.
In May 1995, the Company purchased a segment of the customer
base and related accounts receivable 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
approximately $97,000.
In September 1995, the Company purchased another segment 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
5
<PAGE>
the customer base, located in Wyoming, was approximately $94,000.
In October 1995, the Company purchased substantially all of the
assets of Value Tel, Inc. for approximately 879,000 shares of common stock
valued at $8,600,000, forgiveness of $600,000 owed the Company, and
assumption of liabilities of $840,000. The excess of purchase price over net
tangible assets acquired amounted to approximately $8,450,000. The following
represents the proforma results of operations of the Company and Value Tel,
Inc. for the nine months ending December 31, 1994 and December 31, 1995.
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------------
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Revenues $26,209,000 $19,586,000
Net Income (Loss) (777,000) (203,000)
E.P.S. (0.19) (0.06)
</TABLE>
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 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share was calculated based on the
following number of common and common equivalent shares outstanding:
3,190,354 and 2,336,977 for the three months ended December 31, 1995 and
1994, respectively, and 2,755,713 and 2,331,494 for the nine months ended
December 31, 1995 and 1994, respectively.
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the nine months ended December 31, 1995, interest paid
amounted to $98,672. No interest was paid for the same period of 1994.
Income taxes paid by the Company during the nine months ended December 31,
1995 was $239,000. No income taxes were paid for the same period of 1994.
NOTE 5 - SUBSEQUENT EVENT
In January 1996, the Company purchased a segment of the
customer base and related accounts receivable of Quantum Communications, Inc.
for cash of approximately $400,000, notes payable of $300,000 and
approximately 51,000 shares of common stock valued at $500,000. Of the
assets acquired, approximately $1,100,000 was recorded as the purchase price
of the customer base, which is located primarily in California.
6
<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 nine months ended December 31,
1995 and 1994. The information should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto.
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 dramatically.
For the third fiscal quarter of 1996, revenues, inclusive of excise taxes and
fees, were $7,372,526, compared to $6,379,882 for the third fiscal quarter of
1995, an increase of 15.6%. For the nine month period ended December 31,
1995, revenues were $21,596,786 compared to $17,076,362 for the nine month
period ended December 31, 1994, an increase of approximately 26.5%. 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. The Company booked 48.6 million billable minutes
in the three months ended December 31, 1995, up 16.8% from 41.6 million
billable minutes in the third quarter last year. For the nine months ended
December 31, 1995, the Company recorded 144.6 million billable minutes,
compared to 107.7 million billable minutes for the nine months ended December
31, 1994, representing an increase of 34.3%.
Cost for telecommunications for the three months ended December 31, 1995 were
$5,221,804, representing approximately 70.8% of revenue, compared to
$5,183,269, representing 81.2% of revenue for the same period in 1994. For
the nine months ended December 31, 1995, telecommunications costs were
$16,219,234, approximately 75.1% of revenues, compared to $13,708,855, or
approximately 80.3% of revenues, for the nine month period ended December 31,
1994. 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 $1,700,414 for the three
months ended December 31, 1995, representing 23.1% of revenue. This compares
with SG&A expense of $999,268 for the three months ended December 31, 1994,
representing 15.7% of revenues. Selling, general and administrative expenses
for the nine month period ended December 31, 1995 were $4,448,786, or 20.6%
of revenue, compared to $2,689,807 for the nine month period ended December
31, 1994, or 15.8% of revenue. This increase is
7
<PAGE>
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 $354,701 for the three months ended
December 31, 1995, representing 4.8% or revenues. This is compared to
$82,600, or 1.3% of revenue, for the same period in 1994. Depreciation and
amortization expense for the nine month period ended December 31, 1995 was
$711,775, representing 3.3% of revenues, compared to $227,992 for the nine
months ended December 31, 1994, or 1.3% of revenues. 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 December 31, 1995 was $23,833, compared
to $85,792 for the third fiscal quarter of 1995. Net income for the nine
months ended December 31, 1995 was $63,994, compared to $331,898 for the nine
months ended December 31, 1994. This decrease in net income is attributable
to the rise in Selling, general and administrative expenses and depreciation
and amortization expense.
FOURTH QUARTER PLANS
In the fourth quarter of fiscal 1996, the Company instituted an
across-the-board reorganization of the entire Company, including
re-engineering of its central operations center, implementation of
system-wide cost-cutting and efficiency programs, with immediate reductions
in company-wide employment and long-term reductions in general overhead.
Certain of these staff reductions and efficiencies were made possible through
the elimination of duplicate functions which resulted from acquisitions.
As a result of managements efforts to achieve long-term reductions in
administrative costs, and as part of the ongoing evaluation and assimilation
of the entities and customer bases acquired, fourth quarter operating results
will be negatively impacted. Costs associated with staff reductions and
realignments, final valuation of certain assets obtained in acquisition
transactions and amortization of intangible assets acquired will result in an
increase in operating expenses for the fourth quarter.
Management is also de-emphasizing the lower margin, higher risk wholesale
reseller segment of its business and anticipates that, in the short-term,
earnings could be negatively impacted while the Company reassesses its
relationships with certain wholesalers.
Because of the matters discussed above, it is likely that the Company will
incur a loss for the fourth quarter and such loss could result in a loss for
the year ending March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended December 31, 1995, the Company's cash flow used in
operating activities was $281,833 compared to cash flow provided by operating
activities of $548,012 for the nine months ended December 31, 1994. The
Company made significant capital investments in the first nine months of
fiscal year 1995, resulting in cash used in investing activities of
$2,412,112, compared to $2,218,255 of cash used in investing activities for
the nine months ended December 31, 1994. These investments included customer
base acquisitions, the central switch, office furniture and fixtures and
leasehold improvements related to the Company's new operations center. The
Company has financed these capital expenditures and acquisitions by utilizing
its 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 $6,000,000, of which
approximately $3,000,000 was unused as of December 31, 1995.
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
8
<PAGE>
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.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which generally requires disclosure of additional information
concerning stock-based employee compensation arrangements. The Company plans
to adopt SFAS No. 123, effective April 1, 1996.
9
<PAGE>
PART II
OTHER INFORMATION
Items 1 through 5 - Not applicable.
Item 6 - Exhibits and Current Reports on Form 8-K
(a) Exhibits - None.
(b) Current reports on Form 8-K
During the quarter ended December 31, 1995, the following
current reports on Form 8-K were filed with the Commission:
(1) Current report on Form 8-K dated October 31,
1995, was filed on December 13, 1995 reporting
under Item 2 Acquisition or Disposition of
Assets; and a Form 8-K/A dated October 31, 1995
was filed on December 29, 1995 reporting under
Item 7 Financial Statements.
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: , 1996 By: /s/ MARC I. BECKER
-------------------------------
Marc I. Becker, Executive Vice
President and Chief Operating
Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 642
<SECURITIES> 0
<RECEIVABLES> 8,145
<ALLOWANCES> 690
<INVENTORY> 0
<CURRENT-ASSETS> 8,597
<PP&E> 3,592
<DEPRECIATION> 1,312
<TOTAL-ASSETS> 22,392
<CURRENT-LIABILITIES> 6,489
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,852
<TOTAL-LIABILITY-AND-EQUITY> 22,392
<SALES> 21,597
<TOTAL-REVENUES> 21,597
<CGS> 16,219
<TOTAL-COSTS> 21,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 116
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 118
<INCOME-TAX> 54
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
