UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 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 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 4,489,859 shares of the Registrant's $.0001 par value common
stock issued and outstanding as of September 30, 1996.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1996 and March 31, 1996. . . . . . . . . 2
Consolidated Statements of Income
Three and six months ended September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows
Six months ended September 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 . . . . . . . . . . . . . . . . . 6-8
PART II - OTHER INFORMATION
Exhibits and Current Reports on Form 8-K. . . . . . . . . . . . 9
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
1996 1996
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 237,432 $ 886,683
Accounts receivable, net of allowance
for doubtful accounts of $1,740,000
and $1,001,000 at September 30, 1996,
and March 31, 1996 respectively 7,071,832 6,946,534
Other receivables 1,034,024 708,962
Deferred income tax asset 364,726 131,656
Other current assets 387,462 583,561
---------- ----------
Total current assets 9,095,476 9,257,396
Property and equipment
Land 75,000 75,000
Building and improvements 697,002 686,470
Telecommunications equipment 1,390,843 2,210,908
Furniture and fixtures 1,487,386 1,341,828
---------- ----------
3,650,231 4,314,206
Less accumulated depreciation 1,865,988 1,661,091
---------- ----------
1,784,243 2,653,115
Customer acquisition costs, net 8,599,965 6,276,439
Goodwill, net 4,744,781 2,079,433
Other intangibles, net 373,297 417,130
Other assets 713,406 218,940
---------- ----------
Total assets $25,311,168 $20,902,453
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current maturities
of long-term debt $ 1,159,975 $ 146,175
Accounts payable 344,067 297,524
Accrued telecommunications cost 2,477,474 2,736,999
Other accrued liabilities 1,299,904 892,716
Customer deposits 177,075 176,210
Current maturities of capital
lease obligations 90,446 82,855
---------- ----------
Total current liabilities 5,548,941 4,332,479
Deferred income tax liability 0 58,201
Long-term debt 4,572,598 2,889,138
Capital lease obligation 57,629 126,481
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 14,723,199 12,904,794
Retained earnings 408,352 590,935
---------- ----------
Total stockholders' equity 15,132,000 13,496,154
---------- ----------
Total liabilities and
stockholders' equity $25,311,168 $20,902,453
========== ==========
See notes to consolidated financial statements.
-2-
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues (including excise $10,228,579 $ 7,816,343 $20,196,965 $15,903,736
taxes of $192,604 and
$62,018 for the three
months ended September 30,
1996 and 1995,
respectively, and $357,979
and $123,877 for the
six months ended September
30, 1996 and 1995,
respectively.
Operating expenses:
Telecommunications costs 6,864,645 5,752,934 13,761,456 11,969,747
Selling, general and
administrative 2,543,102 1,609,214 4,858,299 3,090,098
Depreciation and
amortization 460,652 212,003 845,562 388,349
Provision of losses on
accounts receivable 288,967 81,550 543,007 174,296
---------- ---------- ---------- ----------
Total operating expenses 10,157,366 7,655,701 20,008,324 15,622,490
---------- ---------- ---------- ----------
Operating income 71,213 160,642 188,641 281,246
Interest (income) expense,
net 149,776 60,477 254,865 68,725
Other (income) expense 0 (18,885) 0 (22,827)
---------- ---------- ---------- ----------
Income (loss) before
income taxes (78,563) 119,050 (66,224) 235,348
Provision (benefit) for
income taxes 94,731 12,530 94,731 40,968
---------- ---------- ---------- ----------
Net income (loss) (173,294) 106,520 (160,955) 194,380
Proforma Adjustment (Note 1):
Income tax provision 0 31,258 4,700 60,145
---------- ---------- ---------- ----------
Proforma net income (loss) $ (173,294) $ 75,262 $ (165,655) $ 134,235
========== ========== ========== ==========
Earnings (loss) per
common share $ (.04) $ .04 $ (.04) $ .07
========== ========== ========== ==========
Proforma earnings (loss)
per common share $ (.04) $ .03 $ (.04) $ .05
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
September 30,
------------------------
1996 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (160,955) $ 194,380
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 226,586 227,104
Amortization 618,976 139,423
Provision for losses on
accounts receivable 543,007 150,429
Provision (benefit) for deferred
income taxes (325,753) (430)
Provision for employee stock
incentive plan 25,374 19,800
Changes in assets and liabilities, net
of effect of business combinations:
Increase in accounts receivable (126,218) (1,230,331)
Increase in other receivables (252,318) (13,232)
Increase in other assets (330,816) (259,045)
Decrease in accrued line costs (259,525) (472,793)
(Decrease) increase in
accounts payable (9,578) 123,330
Increase (decrease) in
accrued liabilities 399,005 (167,801)
---------- ----------
Net cash provided by (used in)
operating activities 347,785 (1,289,166)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (160,493) (1,694,464)
Sale of short-term investments, net 0 1,558,562
Acquisition and related costs (4,262,986) (618,025)
Increase in intangible assets 15,365 (176,201)
Proceeds from sale of equipment 764,363 0
---------- ----------
Net cash used in investing activities (3,643,751) (930,128)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 14,405,170 4,430,227
Principal payments on debt (11,688,177) (2,308,538)
Decrease in capital lease obligation (41,426) (35,874)
---------- ----------
Net cash provided by (used in)
financing activities 2,675,567 2,085,815
---------- ----------
Net (decrease) in cash and
cash equivalents (620,399) (133,479)
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 $ 237,432 $ 304,022
========== ==========
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 reclassifications have been made to the balance sheet
dated March 31, 1996 in order to conform to the balance sheet dated
September 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 post-pooled financial statements of Network Long Distance as
filed in the Company's Form 8-K. The results for the three months ended
September 30, 1996, are not necessarily indicative of the results that may
be expected for the year ending March 31, 1997.
NOTE 2 - 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 $1,794,000, and cash of approximately
$3,628,000. The Company has initially 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 six months ending September 30, 1996.
For the Six Months Ended
--------------------------
September 30, 1996
------------------
Revenues $21,780,000
-----------
Net Income (Loss) (979,620)
--------
E.P.S. (.25)
----
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 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: 3,863,167 and
2,840,868 for the three months ended September 30, 1996 and 1995,
respectively, and 3,782,807 and 2,784,805 for the six months ended
September 30, 1996 and 1995, respectively.
-5-
<PAGE>
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the three months ended September 30, 1996 and 1995, interest paid
amounted to $150,000 and $60,000, respectively. For the six months ended
September 30, 1996 and 1995, interest paid amounted to $255,000 and
$69,000, respectively. Income taxes paid by the Company during the three
months and six months ended September 30, 1996 and 1995 was $170,000 and
$130,000, respectively.
NOTE 5 - PROPOSED MERGER
On September 10, 1996, Network signed a letter of intent to merger
with United WATs, Inc. (United WATs). When consummated, Network expects to
issue approximately 2,278,000 shares of common stock for all of the
outstanding shares of United WATs in a transaction to be accounted for as
a pooling-of-interest. Network anticipates proforma results for the six
months ended September 30, 1996 and 1995 as follows.
Six Months ended
September 30,
-------------------------
1996 1995
-------- --------
Revenue 29,621,000 21,043,000
---------- ----------
Net Income 492,000 490,000
------- -------
EPS .06 .10
--- ---
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and six months ended
September 30, 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.
For the second fiscal quarter of 1997, revenues, inclusive of excise taxes
and fees, were $10,228,579, compared to $7,816,343 for the second fiscal
quarter of 1996, an increase of 30.9%. For the six month periods ended
September 30, 1996 and 1995, revenues, inclusive of excise taxes and fees,
were $20,196,965 and $15,903,736, respectively. This represents a 27.0%
increase. 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.
Cost for telecommunications for the three months ended September 30, 1996
and 1995 were $6,864,645 and $5,752,934,respectively. This represented
approximately 67.1% of revenues for the three month period ended September
30, 1996 and 73.6% for the same period in 1995. For the six months ended
September 30, 1996 and 1995, cost of telecommunications was $13,761,456 and
$11,969,747, respectively. This represented approximately 68.1% of
revenues for the six months ended September 30, 1996 and 75.3% for the same
period in 1995. This continues a trend of steadily declining line costs
and is a reflection of economies of scale resulting
-6-
<PAGE>
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 and changes in
underlying carrier contracts.
Selling, general and administrative expenses were $2,543,102 and $1,609,214
for the three months ended September 30, 1996 and 1995, respectively. This
represented approximately 24.9% of revenues for the three months ended
September 30, 1996 and 20.6% of revenues for the same period in 1995. For
the six months ended September 30, 1996 and 1995, SG&A expenses were
$4,858,299 and 3,090,098 or approximately 24.1% and 19.4% of revenues,
respectively. The increase in SG&A are primarily due to increases in
personnel costs, commissions, taxes, and professional fees associated with
the Company s continued growth and expanded mergers and acquisitions
program.
Depreciation and amortization expense for the three months ended September
30, 1996 was $460,652 or 4.5% of revenues. This compared to $212,003 or
2.7% of revenues for the same period in 1995. For the six month period
ended September 30, 1996, depreciation and amortization was $845,562 or
4.2% of revenues compared to $388,349 or 2.4% of revenues for the same
period in 1995. These increases are primarily associated with the
amortization of the customer bases and goodwill resulting from the
Company's on-going mergers and acquisitions program.
The provision for losses on accounts receivable for the three month period
ended September 30, 1996 was $288,967 or 2.8% of revenues. This compared
to $81,550 or 1.0% of revenues for the same period in 1995. For the six
month period ended September 30, 1996, the provision for losses on accounts
receivable was $543,007 or 2.7% of revenues compared to $174,296 or 1.1% of
revenues for the same period in 1995. These increases are primarily
associated with the wholesale division of the Company and is consistent
with the Company's plan to de-emphasize this line of business in light of
its higher risks and lower margins. The Company anticipates this provision
will decrease as its plan to de-emphasize the wholesale division is fully
implemented.
Net income for the three months ended September 30, 1996 was $(173,294),
compared to $106,520 for same period in 1995. For the six month period
ended September 30, 1996, net income was $(160,955) compared to $194,380
for the same period in 1995. These decreases in net income are
attributable to the rise in Selling, general and administrative expenses
and depreciation and amortization expense.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended September 30, 1996, the Company's cash flow
provided by operating activities was $347,785 compared to cash flow used in
operating activities of $1,289,166 for the three months ended September
30, 1995. The Company made significant capital investments in the first
six months of fiscal year 1997, resulting in cash used in investing
activities of $3,643,751, compared to $930,128 of cash used in investing
activities for the six months ended September 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.
$2,649,169 was available as of September 30, 1996 on this 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
---------------------------------------------------
None
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 September 30, 1996, the Company filed a
current report on Form 8-K dated September 16, 1996, reporting
under Item 2 Acquisition or Disposition of Assets. After the
quarter ended September 30, 1996, the Company filed the following
current reports: Current report on Form 8-K/A dated September 16,
1996 filed on November 12, 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: November 14, 1996 By: /s/ MARC I. BECKER
----------------------------------
Marc I. Becker,
Executive Vice President and
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 8,812
<ALLOWANCES> 1,740
<INVENTORY> 0
<CURRENT-ASSETS> 9,095
<PP&E> 3,650
<DEPRECIATION> 1,866
<TOTAL-ASSETS> 25,311
<CURRENT-LIABILITIES> 5,549
<BONDS> 0
0
0
<COMMON> 4,490
<OTHER-SE> 15,132
<TOTAL-LIABILITY-AND-EQUITY> 25,311
<SALES> 20,197
<TOTAL-REVENUES> 20,197
<CGS> 20,008
<TOTAL-COSTS> 20,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 189
<INCOME-TAX> 95
<INCOME-CONTINUING> (66)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
