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
November 15, 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 77-1122018
- --------------- ----------- -------------------
(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)
(b) Pro Forma Financial Information.*
Item 7(b)
(c) Supplemental Consolidated Balance Sheets of Network Long
Distance, Inc. and subsidiaries as of March 31, 1996 and
1995 and the related supplemental consolidated statements of
operations, stockholders equity and cash flows.
*previously filed
-2-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Network Long Distance, Inc.:
We have audited the accompanying supplemental consolidated balance sheets
of Network Long Distance, Inc., (a Delaware Corporation) and subsidiaries
as of March 31, 1996 and 1995, and the related supplemental consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. The supplemental consolidated statements give effect to the
merger with United Wats, Inc., on November 15, 1996, which has been
accounted for as a pooling-of-interests as described in Note 1. These
supplemental financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
supplemental financial statements based on our audits. The supplemental
consolidated financial statements of Network Long Distance, Inc., for the
year ended March 31, 1994 were audited by other auditors whose report dated
December 1, 1996, expressed an unqualified opinion on those statements.
We did not audit the financial statements of Long Distance Telecom, Inc.
included in the supplemental consolidated financial statements of Network
Long Distance, Inc. which statements reflect total assets and revenues
constituting 4.6% and 7.8%, respectively, in 1996 and 8.0% and 9.5%,
respectively, in 1995 of the related supplemental consolidated totals. We
also did not audit the financial statements of United Wats, Inc., included
in the supplemental consolidated financial statements of Network Long
Distance, Inc., which statements reflect total assets and revenues
constituting 10.3% and 23.3%, respectively, in 1996 and 5.7% and 8.0%,
respectively, in 1995 of the related supplemental consolidated totals. The
statements of Long Distance Telecom, Inc. and United Wats, Inc. were
audited by other auditors whose reports thereon have been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts
included for Long Distance Telecom, Inc., and United Wats, Inc., is based
solely upon the reports of other auditors.
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
and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based upon our audit and the reports of the other auditors,
the supplemental consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Network
Long Distance, Inc., and its subsidiaries as of March 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years then ended, after giving retroactive effect to the merger with United
Wats, Inc., as described in Note 1, all in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------
Arthur Andersen LLP
Jackson, Mississippi,
December 31, 1996.
<PAGE>
FAULK & WINKLER, LLC
------------------------------------------------
Certified Public Accountants * Business Advisors
Independent Auditors' Report
Board of Directors
Network Long Distance, Inc.
Baton Rouge, Louisiana
We have audited the accompanying supplemental consolidated statements
of operations, stockholders' equity and cash flows of Network Long
Distance, Inc. and subsidiaries for the year ended March 31, 1994. The
supplemental consolidated statements give effect to the merger with United
Wats, Inc., on November 15, 1996, which has been accounted for as a
pooling-of-interests as described in Note 1. These supplemental financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits.
We did not audit the financial statements of Blue Ridge Telephone,
Inc. included in the supplemental consolidated financial statements of
Network Long Distance, Inc. which statements reflect total revenues
constituting 14.3% in 1994 of the related supplemental consolidated totals.
We also did not audit the financial statements of United Wats, Inc.,
included in the supplemental consolidated financial statements of Network
Long Distance, Inc., which statements reflect total revenues constituting
4.9% in 1994 of the related supplemental consolidated totals. The
statements of Blue Ridge Telephone, Inc. and United Wats, Inc. were audited
by other auditors whose reports thereon have been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
Blue Ridge Telephone, Inc., and United Wats, Inc., is based solely upon the
reports of other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit
and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based upon our audit and the reports of the other
auditors, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the results of operations
of Network Long Distance, Inc. and its subsidiaries and their cash flows
for the year ended March 31, 1994, after giving retroactive effect to the
merger with United Wats, Inc., as described in Note 1, all in conformity
with generally accepted accounting principles.
/s/ FAULK & WINKLER
----------------------------
Certified Public Accountants
Baton Rouge, Louisiana
December 31, 1996
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
--------------------------------------------
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
----------------------------------------
March 31,
-----------------------
1996 1995
-------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 892,572 $ 523,267
Securities purchased under agreement
to resell - 1,558,562
Accounts receivable, net of allowance
for doubtful accounts of $1,073,000
and $518,000 at March 31, 1996 and
1995, respectively 9,325,997 5,014,254
Other receivables 708,962 -
Other current assets 668,231 170,943
---------- -----------
Total current assets 11,595,762 7,267,026
PROPERTY AND EQUIPMENT:
Land 75,000 75,000
Building and improvements 697,285 436,568
Telecommunications equipment 2,338,866 2,093,204
Furniture and fixtures 1,371,197 801,038
---------- -----------
4,482,348 3,405,810
Less: accumulated depreciation (1,758,936) (1,161,784)
---------- -----------
2,723,412 2,244,026
---------- -----------
CUSTOMER ACQUISITION COSTS, NET 5,501,559 1,626,441
GOODWILL, NET 2,079,433 22,666
OTHER INTANGIBLES, NET 1,192,010 234,890
OTHER ASSETS 218,940 367,213
---------- -----------
Total assets $23,311,116 $11,762,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,657,423 $ 1,119,252
Accrued telecommunications cost 2,736,999 1,481,409
Other accrued liabilities 1,152,591 886,822
Customer deposits 176,210 183,185
Deferred income tax liability 242,872 76,690
Current maturities of long-term debt 202,280 144,252
Current maturities of capital lease
obligation 82,855 73,873
---------- -----------
Total current liabilities 6,251,230 3,965,483
DEFERRED INCOME TAX LIABILITY 58,201 16,476
LONG-TERM DEBT 2,889,138 198,694
CAPITAL LEASE OBLIGATION 126,481 209,337
COMMITMENTS AND CONTINGENCIES
Series A convertible preferred stock -
$.01 par value; 25,000,000 shares
authorized; no shares issued and
outstanding at March 31, 1996 and 1995
(redemption value $3 per share) - -
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value; 20,000,000
shares authorized; 6,523,876 and
5,606,939 shares issued and outstanding
at March 31, 1996 and 1995, respectively 652 561
Additional paid-in capital 12,970,833 6,695,241
Retained earnings 1,106,871 768,760
Treasury Stock (92,290) (92,290)
---------- -----------
Total stockholders' equity 13,986,066 7,372,272
---------- -----------
Total liabilities and
stockholders' equity $23,311,116 $11,762,262
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
--------------------------------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------
For the Year Ended March 31,
---------------------------------
1996 1995 1994
-------- -------- --------
Revenues (including excise taxes
of $250,000, $219,000 and
$148,000 in 1996, 1995 and
1994, respectively) $44,699,191 $29,374,853 $13,134,620
Operating expenses:
Telecommunications costs 32,548,221 21,823,645 9,234,807
Selling, general and
administrative 9,036,273 5,652,103 2,926,598
Provision for losses on
accounts receivable 1,112,151 403,314 243,590
Depreciation and amortization 1,246,826 396,661 277,357
---------- ---------- ----------
Total operating expenses 43,943,471 28,275,723 12,682,352
---------- ---------- ----------
Operating income 755,720 1,099,130 452,268
Interest (income) expense, net 198,897 (65,480) 145,482
Other (income) loss (40,947) 30,142 17,945
---------- ---------- ----------
Income before income taxes 597,770 1,134,468 288,841
Provision for income taxes 223,273 266,954 114,955
---------- ---------- ----------
Net income 374,497 867,514 173,886
Preferred dividend requirement - - 31,984
---------- ---------- ----------
Net income applicable to common
stockholders 374,497 867,514 141,902
Pro forma adjustment (Note 1):
Income tax provision 126,375 28,685 26,209
---------- ---------- ----------
Pro forma net income applicable
to common stockholders $ 248,122 $ 838,829 $ 115,693
========== ========== ==========
Earnings per common share $ 0.07 $ 0.19 $ 0.04
========== ========== ==========
Pro forma earnings per common
share $ 0.05 $ 0.18 $ 0.03
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
--------------------------------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value Additional Treasury Stock
---------------- Paid-in Retained -----------------
Number Amount Capital Earnings Number Amount
------ ------ ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 3,936,014 $ 394 $ 136,727 $ 322,808 - $ -
Issuance of common stock
through public offering
(net of offering costs
of $1,200,363) 1,422,139 142 5,703,195 - - -
Issuance of common stock to
former holders of Series B
Convertible Preferred Stock 60,000 6 299,994 (300,000) - -
Purchase of treasury stock - - - - 1,028,917 (239,559)
Dividends on preferred
stock, $0.39 per share - - - (31,984) - -
Dividends on common stock,
$0.006 per share - - - (29,597) - -
Net income - - - 173,886 - -
-------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 1994 5,418,153 542 6,139,916 135,113 1,028,917 (239,559)
Issuance of common stock to
former holders of Series A
Convertible Preferred Stock 63,502 6 190,500 - - -
Issuance of common stock for
acquisitions 29,038 3 232,126 - - -
Issuance of common stock (net
of direct costs of $53,585) 728,773 73 151,038 - - -
Retirement of treasury
stock (632,527) (63) (18,339) (128,867) (632,527) 147,269
Dividends on common stock,
$0.02 per share - - - (105,000) - -
Net income - - - 867,514 - -
-------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 1995 5,606,939 561 6,695,241 768,760 396,390 (92,290)
Issuance of common stock
for acquisitions 916,937 91 6,275,592 - - -
Dividends on common stock,
$0.006 per share - - - (36,386) - -
Net income - - - 374,497 - -
-------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 1996 6,523,876 $ 652 $12,970,833 $1,106,871 396,390 $(92,290)
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
--------------------------------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------
For the Year Ended March 31,
---------------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 374,497 $ 867,514 $ 173,886
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation 623,845 316,391 242,573
Amortization 622,981 80,270 34,784
Provision for losses on
accounts receivable 1,112,151 403,314 243,590
Provision for deferred
income taxes 207,907 71,434 114,955
Provision for employee stock
incentive plan 50,752 42,350 -
(Gain) loss on disposal of
equipment (17,000) 62,319 19,476
Promotional Bonuses - 73,825 13,179
Changes in assets and
liabilities, net of effect
of business combinations:
Accounts receivable (3,997,138) (2,888,943) (1,716,189)
Other current assets (1,206,250) 34,408 33,457
Accounts payable and other
current liabilities 1,943,120 2,223,200 381,509
Other 122,232 (232,000) 271,339
---------- ---------- ----------
Net cash provided by (used in)
operating activities (162,903) 1,054,082 (187,441)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,081,983) (1,423,988) (267,096)
Sale (purchase) of short-term
investments, net 1,558,562 2,751,238 (4,309,800)
Acquisitions and related costs (1,101,173) (1,781,055) -
Increase in intangible assets (195,321) (110,853) -
Proceeds from sale of equipment 17,000 - -
Other (4,462) (4,179) (145,704)
---------- ---------- ----------
Net cash used in investing
activities (807,377) (568,837) (4,722,600)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (12,596,238) (454,680) (654,988)
Proceeds from issuance of debt 13,972,209 123,000 11,331
Proceeds from issuance of
common stock - 204,695 6,903,700
Proceeds from sale of redeemable
preferred stock - - 300,000
Redemption of preferred stock - (55,527) (300,000)
Dividends on preferred stock - - (31,984)
Dividends on common stock (36,386) (134,597) -
Offering costs - (53,585) (1,200,363)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 1,339,585 (370,694) 5,027,696
---------- ---------- ----------
Net increase in cash and
cash equivalents 369,305 114,551 117,655
Cash and cash equivalents at
beginning of period 523,267 408,716 291,061
---------- ---------- ----------
Cash and cash equivalents at
end of period $ 892,572 $ 523,267 $ 408,716
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------
1. MERGERS:
--------
On June 30, 1996, Network Long Distance, Inc. (Network), merged with Long
Distance Telecom, Inc. dba Blue Ridge Telephone (Blue Ridge) and in
connection therewith issued 337,058 shares of common stock for all of Blue
Ridge's common stock. On November 15, 1996, Network merged with United
Wats, Inc. (United Wats) and in connection therewith issued 2,277,775
shares of common stock for all of United Wats' common stock. (Both
transactions will be collectively referred to as the "Mergers.") The
Mergers were accounted for as pooling-of-interests and, accordingly, the
Network financial statements for periods prior to the Mergers have been
restated to include the results of Blue Ridge and United Wats for all
periods presented. Separate and combined results of operations are as
follows:
For the year ended March 31,
---------------------------------
1996 1995 1994
-------- -------- --------
Revenues:
Network $30,810,016 $24,216,948 $10,621,705
Blue Ridge 3,463,470 2,789,916 1,871,855
United Wats 10,425,705 2,367,989 641,060
---------- ---------- ----------
Combined $44,699,191 $29,374,853 $13,134,620
========== ========== ==========
Income (loss) before income tax:
Network $ (442,412) $ 609,192 $ 321,320
Blue Ridge 313,243 62,008 (56,801)
United Wats 726,939 463,268 24,322
---------- ---------- ----------
Combined $ 597,770 $ 1,134,468 $ 288,841
========== ========== ==========
Prior to the Mergers, Blue Ridge operated in the form of a partnership
under the name "Telecommunications Ventures Limited Partnership No. 1 T/A
Blue Ridge Telephone." On June 17, 1996, Blue Ridge changed to a corporate
form of organization. Blue Ridge did not recognize income tax expense for
the periods presented because its tax attributes flowed to its partners.
In addition, prior to October 1, 1994, United Wats was taxed under
Subchapter S of the Internal Revenue Code. United Wats did not recognize
income tax expense prior to October 1, 1994 because its tax attributes
flowed to its shareholders. The supplemental consolidated statements of
operations include a pro forma adjustment to reflect results as if both
Blue Ridge and United Wats had been subject to income tax for all periods
presented.
Prior to the Mergers, both Blue Ridge and United Wats utilized a December
31 fiscal year end. For purposes of the supplemental consolidated balance
sheets, the March 31, 1996 and 1995, consolidated balance sheets of Network
have been consolidated with the balance sheets of Blue Ridge and United
Wats as of December 31, 1995 and 1994. For purposes of the supplemental
consolidated statements of operations, stockholders' equity and cash flows,
the results of
<PAGE>
2
Network for each of the years in the three year period ended March 31, 1996
have been combined with the results of Blue Ridge and United Wats for each
of the years in the three year period ended December 31, 1995. There were
no significant intercompany transactions among Network, Blue Ridge and
United Wats. The combined companies of Network, Blue Ridge and United Wats
are hereinafter referred to as the "Company."
2. DESCRIPTION OF BUSINESS:
------------------------
The Company provides long distance telecommunications services to
commercial and residential customers in 48 states. The Company provides
these services primarily through three customer service divisions - retail
division, switchless reseller division and agent division. The retail
division involves the sale of long distance services directly to end-users.
The switchless reseller division involves the sale of long distance
services to other entities who resell the services to end-users. The agent
division involves the sale of long distance services directly to end-users
through master agents of the Company.
Calls are transmitted over circuits leased from other telecommunications
carriers at fixed or variable rates. Calls are switched through the
Company's switching center or by other carriers on the Company's behalf.
The Company furnishes its end user customers, as well as its reseller
customers, with various long distance products including 1+ dialing, WATS,
private line, calling cards and 800 services. Billing, collection and
customer service are available, at additional costs, to reseller customers.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
The supplemental consolidated financial statements of Network have been
prepared to give retroactive effect to the mergers with Blue Ridge on June
30, 1996 and United Wats on November 15, 1996. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they
will become the historical consolidated financial statements of the Company
after financial statements covering the date of consummation of the
business combination are issued.
Principles of Consolidation
- ---------------------------
All significant intercompany balances have been eliminated in
consolidation.
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
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates. Estimates are used
primarily when accounting for allowance for doubtful accounts, depreciation
and amortization, and taxes. See "Accounts receivable" and "Intangible
assets."
<PAGE>
3
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts for cash, accounts receivable, other receivables,
accounts payable, accrued liabilities and long-term debt approximate their
fair value.
Securities Purchased Under Agreement to Resell
- ----------------------------------------------
The Company invests excess funds in short-term, interest-bearing
obligations. Due to the short-term nature of these investments, the
Company does not take possession of the securities which are held in
safekeeping.
The Company does not enter into hedge and/or other transactions to limit
the risk of loss that may result from a decline in market value of the
underlying assets in the event of default by the counterparty. However,
the counterparty sells the Company securities with a market value in excess
of the funds invested.
Accounts Receivable
- -------------------
Accounts receivable represent amounts due on monthly billings for long
distance and other telecommunications costs incurred by customers.
The allowance for doubtful accounts is established through a provision for
losses on accounts receivable which is charged to expense. Accounts
receivable are charged against the allowance for doubtful accounts when
management believes the collectibility of the receivable is unlikely. The
allowance, which is based on evaluations of the collectibility of the
receivables and prior bad debt experience, is an amount that management
believes will be adequate to absorb probable losses on accounts receivable
existing at the reporting date. The evaluations take into consideration
such factors as changes in the aging and volume of the accounts receivable,
overall quality, review of specific problem receivables and current
industry conditions that may affect a customer's ability to pay. Actual
results could differ from management's estimates. Charge-offs during the
fiscal years 1996, 1995 and 1994 were approximately $780,000, $179,000 and
$31,000, respectively.
During fiscal year 1996, the Company reevaluated reseller activities
generally and, specifically its relationship with certain resellers. As a
result, the Company has chosen to de-emphasize its reseller marketing
activities by reducing the number of wholesale customers and the related
wholesale accounts receivable. In addition, certain wholesale customers
have experienced financial difficulties which impede their ability to pay
the Company on a timely basis. Wholesale customers with slow payment
histories have been placed on specific payment plans or under lock box
agreements. Management has specifically evaluated its allowance for
doubtful accounts relative to its wholesale customers and believes the
allowance to be adequate to absorb probable losses on the accounts
receivable at March 31, 1996. However, the actual losses on wholesale
accounts receivable could differ from management's evaluation at March 31,
1996 and such difference could be material.
<PAGE>
4
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation is provided for
financial reporting purposes using primarily the straight-line method over
the following estimated useful lives:
Building 30 years
Building improvements 7-39 years
Telecommunications equipment 3-10 years
Office equipment 5-7 years
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets sold
or retired are removed from the property accounts, and any resulting gain
or loss is reflected in results of operations.
Intangible Assets
- -----------------
The Company's intangible assets include customer acquisition costs and
non-compete agreements incurred as a result of purchased customer bases;
goodwill, customer acquisition costs and non-compete agreements resulting
from acquisitions of businesses; and software development costs
attributable to telecommunications service activities.
In allocating the excess of the purchase price over tangible assets
acquired in business combinations, the Company utilizes cash flow models
and projected attrition rates to quantify the values allocated to the
various intangibles as well as the related useful lives. While management
believes that the cash flow models are achievable and the attrition rates
are reasonable, management regularly reassesses the realization of the
acquisition-related intangibles through periodic updates of the cash flow
models. The amounts allocated to the various intangibles and the estimated
useful lives could change based on these periodic updates.
Customer acquisition costs are recorded based upon the estimated value of
the customer base acquired. Customer acquisition costs are amortized over
6 to 12 years using the straight-line method. Accumulated amortization, at
March 31, 1996 and 1995, was approximately $412,000 and $23,000,
respectively.
The Company allocates goodwill to business acquisitions based on a series
of projections of cash flows of the acquired entity. Goodwill is amortized
over 30 to 40 years using the straight-line method. Accumulated
amortization at March 31, 1996 and 1995, was approximately $55,000 and
$24,000, respectively.
Other intangibles include software development costs and non-compete
agreements. The Company capitalizes external costs related to the
development of software while internal costs are expensed. Other
intangibles are amortized using the straight-line method over lives ranging
from one to five years. Accumulated amortization at March 31, 1996 and
1995, was approximately $259,000 and $56,000, respectively.
Other Receivables
- -----------------
Other receivables consist of current amounts due from customers and
entities providing billing and collection services for a portion of the
Company's customer base.
<PAGE>
5
Other Current Assets
- --------------------
At March 31, 1996 and 1995, other current assets consisted of costs of
direct response advertising and other prepaid expenses. Direct response
advertising costs are capitalized and amortized over the expected life of
the customer. The Company has determined that the expected life of a
customer obtained through direct response advertising is one year. At
March 31, 1996, approximately $183,000, net of accumulated amortization of
approximately $194,000, was included in other current assets related to
direct response advertising .
Other Assets
- ------------
Other assets include long-term notes receivable from employees of
approximately $262,000 and $188,000 at March 31, 1996 and 1995,
respectively.
Income Taxes
- ------------
Income taxes are provided using an asset and liability approach. The
current provision for income taxes represents actual or estimated amounts
payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for the estimated future
tax effects of (a) temporary differences between the tax basis of assets
and liabilities and amounts reported in the balance sheets, and (b)
operating loss and tax credit carryforwards. The overall change in
deferred tax assets and liabilities for the period measures the deferred
tax expense for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustments to tax
expense in the period of adjustment. The measurement of deferred tax
assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some
or all of the deferred tax assets will not be realized.
Recognition of Revenue
- ----------------------
Customer long distance calls are routed through switching centers owned by
the Company or others over long distance telephone lines provided by
others. The Company records revenues at the time of customer usage
primarily on a measured time basis.
Telecommunications Expense
- --------------------------
Telecommunications expense includes all payments to local exchange carriers
and interexchange carriers primarily for access and transport charges. The
Company mainly utilizes long-term fixed cost contracts with other carriers
in order to carry customer calls.
Earnings per Share
- ------------------
For the years ended March 31, 1996, 1995 and 1994, earnings per share were
calculated based on the weighted average number of shares outstanding
during the year plus the dilutive effect of stock options and warrants
determined using the treasury method. Average common and common equivalent
shares utilized were 5,079,938, 4,587,620 and 3,827,889, respectively, for
the years ended March 31, 1996, 1995 and 1994. In each year, there were no
differences in primary and fully diluted earnings per share.
<PAGE>
6
Dividends of $31,984 for the year ended March 31, 1994 on convertible
preferred stock were deducted from net income to determine net income
available to common stockholders for earnings per share computations.
Common Stock Escrow Agreement
- -----------------------------
As part of its public offering of common stock in March 1994, the Company
transferred 626,691 shares of common stock, owned by officers, into an
escrow account. The common stock will be released from escrow in three
annual increments of 208,897 shares if the Company either meets earnings
per share requirements, on a fully diluted basis as defined in the
agreement, or consummates a public offering of the Company's common stock
considering certain conditions defined in the agreement. The stipulated
earnings per share (EPS) amounts are as follows:
March 31 EPS
-------- ---
1995 $0.375
1996 0.60
1997 1.00
If the Company fails to meet EPS requirements, the common stock held in
escrow will be forfeited and canceled to the Company's treasury. However,
if the Company meets the EPS requirement in the second or third fiscal
year, any shares forfeited in a prior year(s) will be considered earned and
released to the officers in the subsequent year. If the EPS requirements
are attained, the appropriate compensation expense will be recorded by the
Company.
All of the escrowed shares will be released from escrow in the event the
Company is acquired or merged into another entity prior to March 31, 1997
at a price per common share of at least $10. If the Company is acquired or
merged into another entity prior to March 31, 1997 at a price of less than
$10 per common share, all of the escrowed shares remaining in escrow at the
time of the transaction will be forfeited.
If the Company completes a public offering of its common stock which
results in the Company obtaining capital of $5,000,000 at a minimum price
of $10 per share of common stock, the stipulated dates of March 31, 1997
will be extended to March 31, 1998.
The escrow agreement terminates on July 15, 2000. The escrowed shares have
been excluded from the weighted average number of shares outstanding for
the years ended March 31, 1996 and 1995.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, cash on hand and on deposit
are considered to be cash and cash equivalents.
Reclassifications
- -----------------
Certain items for 1995 and 1994 have been reclassified to conform with the
1996 presentation.
Recently Adopted Accounting Pronouncements
- ------------------------------------------
In 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 114 "Accounting by Creditors
for Impairment of a Loan" and
<PAGE>
7
SFAS No. 116 "Accounting for Contributions Received and Contributions
Made." In 1994, the FASB issued SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." These
statements were adopted by the Company in the year ended March 31, 1996.
Adoption of these statements did not have a material effect on the
financial position or results of operations of the Company.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those
assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. This statement is effective for years
beginning after December 15, 1995.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to apply the accounting provisions of Accounting
Principles Board Opinion 25 in determining its net income; however,
additional disclosures will be made to disclose the estimated value of
compensation expense under the method established by SFAS No. 123.
4. CUSTOMER BASE ACQUISITIONS:
---------------------------
The Company has completed a series of acquisitions of segments of other
long distance providers' customer bases. Such acquisitions have been
accomplished through the purchase of the customer base and related accounts
receivable for cash, shares of the Company's common stock, issuance of
notes payable and forgiveness of accounts receivable or a combination
thereof. All acquisitions have been accounted for as purchases and
resulted in an excess of the purchase price over the net tangible assets
acquired.
The table below sets forth information concerning consideration given in
connection with the customer base acquisitions by the Company:
<TABLE>
<CAPTION>
Purchase Price
--------------------------------------------
Forgiveness Shares Issued
Acquisition of Notes ---------------
Acquired Entity Date Cash Receivables Payable Number Value
----------------- ---- ---- ----------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Quantum
Communications, Inc.
(Quantum) Jan-96 $ 474,226 $ - $339,570 29,756 $ 590,355
Network Services, Inc.
(NSI) May-95 564,802 - 192,500 7,349 55,335
Telecommunications
Brokerage, Inc.
(TBI) May-95 - 238,465 - - -
Prime Telecom, Inc.
(PTI) Apr.-95 10,191 46,875 - - -
Westover Communication
Corp. (WCC) Dec.-94 63,090 - - - -
Colorado River
Communications (CRC) Nov.-94 1,741,977 - - 29,038 232,129
First Choice
Network (FCN) Mar-94 131,695 - - - -
</TABLE>
<PAGE>
9
The table below sets forth information concerning assets acquired in
connection with the customer base acquisitions by the Company:
<TABLE>
<CAPTION>
Amortization
Assets Acquired Period (Years)
--------------------------------- --------------------
Acquisition Accounts Customer Other Customer Other
Acquired Entity Date Receivable Base Intangibles Base Intangibles
----------------- ---- ---------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Quantum
Communications, Inc.
(Quantum) Jan-96 $ 191,250 $ 826,765 $ - 7.5 -
Network Services, Inc.
(NSI) May-95 259,286 368,438 - 12 -
Telecommunications
Brokerage, Inc.
(TBI) May-95 39,811 191,154 - 11 -
Prime Telecom, Inc.
(PTI) Apr.-95 26,712 30,354 - 11 -
Westover Communication
Corp. (WCC) Dec.-94 35,170 11,120 - 12 -
Colorado River
Communications (CRC) Nov.-94 336,210 692,000 870,000 6 2 - 40
First Choice
Network (FCN) Mar-94 56,287 76,289 - 12 -
</TABLE>
The initial purchase price allocations for the fiscal year 1996
acquisitions were based on estimates pending development of 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.
5. BUSINESS COMBINATION:
---------------------
On October 31, 1995, the Company acquired substantially all of the assets
of ValueTel, Inc., (ValueTel), a long distance reseller whose customer base
was located primarily in Illinois, in a transaction accounted for as a
purchase. Results of operations of ValueTel are included in current year
results of operations of the Company from the date of acquisition. As
consideration for the purchase, the Company issued 890,915 shares of its
common stock with an assigned value of approximately $5,955,000, assumed
liabilities of ValueTel of approximately $696,000 and forgave a ValueTel
payable to the Company of approximately $608,000. The Company acquired
substantially all of ValueTel's accounts receivable which were valued at
$1,610,000. Intangible assets acquired were allocated to customer base at
approximately $3,334,000, non-compete agreements at approximately $845,000
and goodwill at approximately $1,470,000. Of the 890,915 shares of the
Company's common stock issued, 16,500 shares are held in escrow pending
resolution of purchase price contingencies. The escrowed shares have not
been considered as part of the purchase price.
<PAGE>
10
The following unaudited pro forma combined results of operations for the
Company assume that the ValueTel acquisition was completed on April 1,
1995.
1996 1995
-------- --------
Revenues $50,080,000 $29,871,000
Income (loss) applicable to
common shareholders 105,635 (23,943)
Income (loss) per share 0.02 (0.01)
These pro forma amounts represent the historical operating results of the
acquired entity combined with those of the Company with appropriate
adjustments which give effect to interest expense, amortization and common
shares issued. These pro forma amounts are not necessarily indicative of
operating results which would have occurred if ValueTel had been operated
by current management during the periods presented because these amounts do
not reflect full network optimization and the synergistic effect on
operating, selling, general and administrative expenses.
The initial purchase price allocation for the ValueTel acquisition was
based on estimates pending development of more detailed information
concerning the current values of certain assets and liabilities. As a
result, the final purchase price allocation may differ from the presented
estimates.
6. INCOME TAXES:
-------------
The provision for income taxes is composed of the following:
1996 1995 1994
-------- -------- --------
Current $ 15,276 $ 195,520 $ -
Deferred 207,997 71,434 114,955
--------- --------- ---------
Total provision for income taxes $ 223,273 $ 266,954 $ 114,955
========= ========= =========
The following is a reconciliation of the actual provisions for income taxes
to the expected amounts which are derived by applying the statutory rate to
reported pretax income. The expected statutory amount does not consider
income (loss) related to Blue Ridge because Blue Ridge was a partnership
for all periods presented. The expected statutory amount for 1994 does not
consider income related to United Wats because United Wats was taxed as a
S Corporation in that period.
1996 1995 1994
-------- -------- --------
Expected statutory amount $ 140,356 $ 392,432 $ 112,462
Usage of net operating loss
carryforwards - (75,409) -
Effect of officer's life insurance 1,681 (9,652) 1,632
Effect of revocation of United Wats
S Corporation Status - (26,280) -
Reclassification from current
taxes payable 68,732 - -
Other 12,504 (14,137) 861
--------- --------- ---------
Actual tax provision $ 223,273 $ 266,954 $ 114,955
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes.
<PAGE>
11
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1996 and 1995:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------
1996 1995
-------------------- -------------------
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 418,557 $ - $ 96,806 $ -
Depreciation - 119,508 - 52,680
Amortization 40,846 - - -
Effect of conversion
from cash basis for
income tax purposes - 239,586 - 118,986
Accounts receivable - 929,790 - 189,517
Prepaid expenses - 82,952 - -
Accrued liabilities 627,774 - 171,446 -
Other - 16,414 900 1,135
---------- ---------- ---------- ----------
Total $1,087,177 $1,388,250 $ 269,152 $ 362,318
========== ========== ========== ==========
</TABLE>
7. LONG-TERM DEBT:
---------------
In December 1995, the Company renewed its line of credit with a bank with
$6,000,000 being available under the renewed facility. Borrowings under
the renewed line of credit mature on April 30, 1997 and bear interest at 1%
above the prime rate (9.25% at March 31, 1996). At March 31, 1996,
$2,532,235 was outstanding under the line of credit. The line of credit is
secured by certain accounts receivable of the Company and requires
compliance with certain financial and operating covenants which include
minimum leverage and fixed charge coverage ratios. At March 31, 1996, the
Company was in compliance with those covenants.
The Company maintains a line of credit with a bank which expires May 31,
1996 and provides short-term credit up to $130,000. Interest is payable
monthly at the rate of prime plus 1.5% with a 30-day pay-out required. The
line of credit is secured by accounts receivable of the Company. The line
of credit requires compliance with certain financial covenants. No
borrowings were outstanding under this facility at March 31, 1996 and 1995.
The Company has a line of credit which expires October 31, 1996 and
provides short-term credit up to $750,000. The line bears interest at the
rate of prime plus 1%. The line is collateralized by substantially all
assets of the Company. No borrowings were outstanding under this facility
at March 31, 1996 and 1995.
At March 31, 1996, $343,114 remained outstanding on notes payable primarily
to acquired entities incurred in connection with acquisition of customer
bases. Borrowings under these notes payable are unsecured, bear interest
at 8% and mature in February 2001.
The Company has other notes payable to banks with aggregate outstanding
balances of $109,280 and $117,932 at March 31, 1996 and 1995, respectively.
Borrowings under these notes mature in periods ranging from September 1996
to July 1999 and bear interest at rates ranging from 7% to 10.5%. The
notes are collateralized by telecommunications and other equipment.
<PAGE>
12
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 lesser of $11,000,000 minus any reserves the lender may deem
eligible or 85% of eligible receivables. Borrowings under the revolving
facility 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 principal 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 including tangible assets, receivables and
general intangibles, the definition of which includes but is not limited to
intellectual property, business plans, business records and licenses, are
pledged as collateral under the credit facility.
Future maturities of long-term debt are as follows:
1997 $ 202,280
1998 134,155
1999 87,895
2000 2,606,833
2001 60,255
----------
$3,091,418
==========
8. EMPLOYEE BENEFIT PLAN:
----------------------
In May 1994, the Company adopted a stock incentive plan (the Plan) under
which certain employees are eligible to receive 100 shares of the Company's
common stock upon completion of their first anniversary of service. All
shares issued under the Plan are held by the Company for a period of three
years from the issue date, at which time the employee vests if they are
still employed with the Company. In the event the Company is sold, all
employees vest immediately. Approximately 19,300 and 17,600 shares of
common stock had been awarded under the Plan at March 31, 1996 and 1995,
respectively. Compensation expense of $50,752 and $42,350 was recognized
in the years ended March 31, 1996 and 1995, respectively, related to the
Plan.
In March 1996, the Company adopted a Defined Contribution Retirement Plan
for all eligible employees which qualifies under the provisions of Section
401(k) of the Internal Revenue Code and will be retroactively effective to
January 1, 1996.
Prior to the Mergers, United Wats operated a Defined Contribution
Retirement Plan which qualified under the provision of Section 401(k) of
the Internal Revenue Code. Employees were allowed to make tax deferred
contributions ranging from 1% to 15% of their eligible compensation.
United Wats matched 25% of the first 6% of each employee's contribution and
was eligible to make additional discretionary contributions. Total profit
sharing expense was $7,689 for the year ended March 31, 1996.
9. STOCK WARRANTS:
---------------
The Company grants warrants to various directors, officers, employees and
nonemployees from time to time. The warrants vest in periods ranging from
immediately following grant date to ten years from grant date. Terms and
conditions of the Company's warrants, including exercise price and the
period warrants are exercisable, generally are at the discretion of the
Company's Board of Directors. Each warrant granted allows for the purchase
of one share of the Company's
<PAGE>
13
common stock. No warrants are exercisable for a period of more than ten
years. No compensation expense has been recognized on granting these
warrants because the exercise price for warrants granted equaled or
exceeded the fair market value of the Company's common stock at the grant
date. The following summarizes information related to warrants granted by
the Company:
Number of Exercise
Warrants Price
-------- -------
Balance, March 31, 1994 - $ -
Granted 120,000 7.50
---------- ----------
Balance, March 31, 1995 120,000 7.50
Granted 1,077,002 7.50-9.875
Canceled (70,000) 9.875
---------- ----------
Balance, March 31, 1996 1,127,002 $7.50-9.125
========== ==========
10. COMMITMENTS:
------------
At March 31, 1996, the Company was committed under noncancellable,
noncapitalizable agreements for fixed cost transmission facilities that
require minimum payments of approximately $25,000,000 in 1997, $18,050,000
in 1998, $8,400,000 in 1999 and $1,350,000 in 2000.
The Company leases office facilities and certain equipment under
noncancellable operating leases having initial or remaining terms of more
than one year. Rent expense related to these leases was approximately
$375,000, $81,000 and $61,000, for the years ended March 31, 1996, 1995 and
1994, respectively. Approximate minimum lease payments under these
operating leases are as follows:
1997 $358,000
1998 363,000
1999 332,000
2000 333,000
2001 365,000
Thereafter 90,000
Certain telecommunications equipment is leased under a capital lease
agreement expiring May 1998. The following is an analysis of the equipment
under capital lease included in property and equipment:
March 31,
-----------------------
1996 1995
-------- --------
Communication equipment $ 367,862 $ 367,862
Less accumulated depreciation (110,039) (58,526)
--------- ---------
$ 257,823 $ 309,336
========= =========
<PAGE>
14
The following is a schedule by years of the future minimum lease payments
under capital lease together with the present value of the minimum lease
payments as of March 31, 1996.
1997 $ 102,794
1998 102,794
1999 34,535
---------
Total minimum lease payments 240,123
Amounts representing interest (30,787)
---------
Present value of net minimum
lease payments 209,336
Less current portion (82,855)
---------
Long-term portion $ 126,481
=========
Certain of the Company's facility leases include renewal options and all
leases include provisions for rent escalation to reflect increased
operating costs and/or require the Company to pay certain maintenance and
utility costs.
11. CONTINGENCIES:
--------------
On February 8, 1996, President Clinton signed legislation that will,
without limitation, permit Bell Operating Companies (BOC) to provide
domestic and international long distance services upon a finding by the
Federal Communications Commission that the petitioning BOC has satisfied
certain criteria for opening up its local exchange network to competition
and that its provision of long distance services would further the public
interest; removes existing barriers to entry into local service markets;
significantly changes the manner in which carrier-to-carrier arrangements
are regulated at the federal and state level; establishes procedures to
revise universal service standards; and establishes penalties for
unauthorized switching of customers. The Company cannot predict the effect
such legislation will have on the Company or the industry. However, the
Company believes that it is positioned to take advantage of business
opportunities in the rapidly-changing telecommunications market.
The Company is involved in legal proceedings generally incidental to its
business. While the results of these various legal matters contain an
element of uncertainty, the Company believes that the probable outcome of
any of these matters, or all of them combined, should not have a material
adverse effect on the Company's consolidated results of operations or
financial position.
12. RELATED PARTY TRANSACTIONS:
---------------------------
The Company held notes receivable and related accrued interest from various
employees of $261,898 and $187,751 as of March 31, 1996 and 1995,
respectively. These notes, which are unsecured, include non-interest
bearing notes and notes bearing interest at a rate of 8%.
The Company is indebted to shareholders under two notes payable aggregating
$106,789 and $225,014, respectively, at March 31, 1996 and 1995. These
notes payable bear interest at rates ranging from 8% to 9% and mature on
dates ranging from September 1995 to December 1997. The notes are secured
by shares in the Company and a life insurance policy on a shareholder. At
March 31, 1996, the current portion of these notes payable was $83,429 with
the remaining portion of $23,360 maturing in the year ending March 31,
1998.
<PAGE>
15
The Company leases office space and a retail facility from shareholders
under two operating leases. Annual rentals under the leases totaled
$37,200, $36,300 and $30,000, respectively, for the years ended March 31,
1996, 1995 and 1994.
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-------------------------------------------------
Interest paid by the Company during the years ended March 31, 1996, 1995
and 1994 amounted to $261,000, $88,000 and $171,000, respectively. Income
taxes paid during the years ended March 31, 1996 and 1995, were $115,000
and $25,000, respectively. No income taxes were paid, and no refunds were
received during the year ended March 31, 1994.
In conjunction with business combinations and customer base acquisitions
during the years ended March 31, 1996 and 1995, assets acquired and non-cash
consideration issued were as follows:
March 31,
----------------------
1996 1995
-------- --------
Fair value of tangible assets acquired $2,134,675 $ 437,667
Excess of cost over intangible
assets acquired 7,329,764 1,771,185
Accounts receivable forgiven (892,935) (195,668)
Liabilities assumed (649,478) -
Notes payable issued (532,070) -
Common stock issued (6,288,783) (232,129)
---------- ----------
Cash paid $1,101,173 $1,781,055
========== ==========
For the year ended March 31, 1996, noncash transactions also included debt
incurred for purchase of equipment of $29,320 and other noncash
transactions of $8,072. For the year ended March 31, 1995, noncash
transactions included retirement of treasury stock of $147,269, capital
lease obligations incurred of $66,940, other noncash transactions of
$25,409 and redemption of preferred stock of $190,506. For the year ended
March 31, 1994, noncash transactions included capital lease obligations
incurred of $300,921, debt incurred in lieu of salary payment of $43,064,
debt issued in exchange for treasury stock of $239,559, dividends accrued
of $29,597, obtaining deposit in exchange for a note payable of $150,000
and other noncash transactions of $74,032.
14. CONCENTRATIONS OF CREDIT RISK:
------------------------------
Four of the Company's switchless customers accounted for approximately 13%
of revenues in 1996 and approximately 13% of gross accounts receivable at
March 31, 1996. The Company performs initial and ongoing credit
evaluations of its customers and maintains an allowance for doubtful
accounts. Customers may be asked to provide personal guarantees and/or
security deposits. If the financial condition and operations of these
switchless customers deteriorate below critical levels, the Company's
operating results could be adversely affected.
<PAGE>
16
15. SUBSEQUENT EVENTS:
------------------
In May 1996, the Company purchased customer base and related accounts
receivable from Universal Network Services, Inc., a switchless reseller
whose customer base is located primarily in Nevada. The purchase price
consisted of approximately $2,852,000 in cash and issuance of 188,373
shares of common stock of the Company tentatively valued at $2,166,000. In
addition to the issuance of the 188,373 common shares, the Company issued
55,385 common shares which are to be held in escrow pending certain
purchase price adjustments. The Company acquired tangible assets
(receivables) valued at approximately $776,000.
<PAGE>
(d) Exhibits: Filed herewith pursuant to Reg. S-K Item 601 is
the following exhibit.
Exhibit No. Description
----------- -----------
1 Share Exchange Agreement and Plan of
Reorganization dated November 15, 1996
between the Registrant and United Wats,
Inc..*
* 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: January 6, 1997 By: /s/ MARC I. BECKER
-----------------------------
Marc I. Becker,
Executive Vice President
-25-
