<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, 1997.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________________ to ___________________.
Commission File Number: 0-23172
NETWORK LONG DISTANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 77-1122018
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11817 CANON BLVD., SUITE 600
NEWPORT NEWS, VIRGINIA 23606
----------------------------------------------------------
Address of Principal Executive Offices, Including Zip Code
757-873-1040
----------------------------------------------------
(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 13,391,878 shares of the Registrant's $.0001 par value common stock
issued and outstanding as of January 31, 1998.
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
<TABLE>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1997 and March 31, 1997. . . . . . . . . . . . . . . 3
Consolidated Statements of Income
Three and nine months ended December 31, 1997 and 1996. . . . . . 4
Consolidated Statements of Cash Flows
Nine months ended December 31, 1997 and 1996. . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 9-12
PART II - OTHER INFORMATION
Exhibits and Current Reports on Form 8-K . . . . . . . . . . . . . . . . 13
SIGNATURES. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited)
Dec. 31, 1997 March 31, 1997
------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,087,067 $ 1,962,216
Marketable securities - 788,124
Accounts receivable, net of allowance for doubtful
accounts of $2,338,000 and $2,377,000 at December 31, 1997
and March 31, 1997 respectively 16,592,857 11,714,585
Other receivables 385,299 360,965
Deferred income tax asset 344,599 157,406
Other current assets 723,284 930,491
------------- -----------
Total current assets 19,133,106 15,913,787
Property and equipment
Land 50,000 75,000
Building and improvement 554,890 562,620
Telecommunications equipment 5,440,388 4,274,989
Furniture & fixtures 3,250,402 1,782,252
------------- -----------
9,295,680 6,694,861
Less accumulated depreciation 4,357,809 3,704,812
------------- -----------
Total property & equipment, net 4,937,871 2,990,049
Customer acquisition costs, net 4,904,295 5,645,730
Goodwill, net 20,749,526 450,020
Other intangibles, net 44,637 264,221
Other assets 140,792 919,702
------------- -----------
Total assets $49,910,227 $26,183,509
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,381,560 $ 507,945
Accrued transmission cost 12,486,589 7,535,055
Accrued merger and other related charges 345,000 24,450
Accrued compensation 1,193,073 855,261
Other accrued liabilities 3,071,147 2,059,742
Current maturities of long-term debt and capital lease
obligations 117,516 1,244,006
------------- -----------
Total current liabilities 18,594,885 12,226,459
Deferred income tax liability 676,114 101,866
Long-term debt and capital lease obligation 1,024,739 2,053,317
Series A convertible preferred stock - $.01 par value; no shares
issued and outstanding at December 31, 1997 and March 31, 1997
respectively - -
Stockholders' equity
Common stock - $.0001 par value; 20,000,000 shares authorized;
13,391,878 and 10,079,848 shares outstanding
at December 31, 1997 and March 31, 1997, respectively 1,339 1,008
Additional paid-in capital 38,758,303 14,847,704
Retained earnings (deficit) (9,052,863) (2,942,914)
Treasury stock (92,290) (92,290)
Unrealized holding loss on marketable securities - (11,641)
------------- -----------
Total stockholders' equity 29,614,489 11,801,867
------------- -----------
Total liabilities and stockholders' equity $ 49,910,227 $26,183,509
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
For the three months ended For the nine months ended
December 31, December 31,
-------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues (including excise taxes of $4,260,000 and $26,085,075 $20,906,082 $78,463,517 $63,430,220
$3,334,000 for the nine months ended Dec. 31,
1997 and 1996, respectively and $1,445,000 and
$1,129,000 for the three months ended Dec. 31,
1997 and 1996, respectively)
Operating expenses:
Transmission costs 16,478,531 13,969,971 49,227,012 41,953,727
Selling, general and administrative 7,248,664 5,851,986 21,250,354 16,604,849
Depreciation and amortization 1,207,754 672,866 3,337,189 1,767,799
Provision for losses on accounts receivable 715,476 2,038,334 2,354,485 2,852,098
Merger expenses and other related charges 271,378 - 2,496,445 -
Provision to reduce carrying value of certain assets 4,024,946 4,050,000 4,024,946 4,050,000
Stock compensation related to merger - - 1,100,000 -
----------- ----------- ----------- -----------
Total operating expenses 29,946,749 26,583,157 83,790,431 67,228,473
Operating income (loss) (3,861,674) (5,677,075) (5,326,914) (3,798,253)
Interest (income) expense, net 104,311 135,379 336,269 449,378
Other (income) expense (68,587) - (100,123) 19,031
----------- ----------- ----------- -----------
Income (loss) before income taxes (3,897,398) (5,812,454) (5,563,060) (4,266,662)
Provision (benefit) for income taxes 484,888 (812,329) 546,888 (152,718)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders $(4,382,286) $(5,000,125) $(6,109,948) $(4,113,944)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share - basic and diluted $ (0.34) $ (0.54) $ (0.49) $ (0.45)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
FOR THE NINE MONTHS ENDED DEC. 31,
----------------------------------
1997 1996
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(6,109,948) $(4,113,944)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,200,104 818,462
Amortization 2,137,085 949,337
Provision for bad debts 2,354,485 2,852,098
Provision for deferred income taxes - (1,157,374)
Gain on sale of assets 22,928 -
Provision for employee stock incentive plan 4,091 38,062
Compensation expense related to exercise of stock
options 1,100,000 -
Loss on impairment of certain assets 4,024,946 4,050,000
Changes in assets and liabilities, net of effect
of business combinations:
(Increase) decrease in accounts receivable (3,181,820) (1,055,342)
(Increase) decrease in other current assets 179,074 123,241
(Increase) decrease in other assets 699,723 218,596
Increase (decrease) in accrued transmission
costs 3,028,935 1,572,185
Increase (decrease ) in accounts payable (1,343,371) (1,643,607)
Increase (decrease ) in accrued merger costs 320,550 -
Increase (decrease) in accrued liabilities (210,283) 772,134
----------- -----------
Net cash provided by (used in) operating activities 4,226,499 3,423,848
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,121,965) (493,138)
Sale of short-term investments, net 788,124 (3,829,181)
Acquisition and related costs (2,508,493) -
Decrease (increase) in other intangible assets (45,394) 92,399
Proceeds from disposal of equipment - 764,363
----------- -----------
Net cash used in investing activities (2,887,728) (3,465,557)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit 625,793 (1,378,689)
Principal payments on debt (2,452,044) (1,008,169)
Proceeds from issuance of debt - 3,250,000
Decrease in capital lease obligation (635,981) (63,305)
Common stock issued pursuant to employee stock plan 98,312 -
Equity issued pursuant to conversion of stock options 150,000 -
----------- -----------
Net cash used in financing activities (2,213,920) 799,837
Net increase in cash and cash equivalents (875,149) 758,128
Effect of change in fiscal year-end - 536,588
Cash and cash equivalents at beginning of period 1,962,216 1,460,232
----------- -----------
Cash and cash equivalents at end of period $ 1,087,067 $ 2,754,948
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MERGERS
In May 1997, Network Long Distance, Inc. (the "Company") merged with Eastern
Telecom International Corporation (ETI), a provider of long distance
telecommunication services, in a transaction accounted for as a purchase.
The merger was consummated with the issuance of 3,633,272 shares of the
Company's common stock and cash payments of $1,500,000. The transaction
resulted in an intangible asset of approximately $25,248,000 of which
$3,815,000 and $21,433,000 have been allocated to customer base and goodwill,
respectively. The Company is amortizing the customer base over a useful life
of 3 years and the goodwill over a useful life of 20 years. The following
represents the proforma results of operations of the Company and ETI for the
nine months ended December 31, 1997 and 1996 as if the acquisition had
occurred as of the earliest date presented.
<TABLE>
For the nine months ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues $81,061,000 $79,037,000
Net (loss) income (7,368,000) (3,661,000)
Net income per share $ (0.57) $ (0.29)
</TABLE>
NOTE 2 - BASIS OF PRESENTATION
The financial statements included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations.
Certain 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.
NOTE 3 - REDUCTION IN CARRYING VALUE OF CERTAIN ASSETS
During the three month period ended December 31, 1997 the Company incurred
non-cash charges related to a reduction in the carrying value of intangible
assets associated with certain acquisitions. During the quarter, current
Management noted that the attrition rates of the customer bases acquired
under these acquisitions (the revenue of which currently represents less than
10% of total Company revenue) were substantially higher than the attrition
expectations formerly established when the bases were previously analyzed in
the quarters ended December 31, 1996 and March 31, 1997. As a result,
applying the requirements of Statement of Financial Accounting Standard No.
121, "Accounting for the
6
<PAGE>
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121), Management revised estimates of the recoverability of these
intangible assets, resulting in a non-cash charge of $3,732,000. The
write-down included $1,137,000 for customer acquisition costs associated with
the purchase of selected assets from Value Tel, Inc., $431,000 for goodwill
and $1,000,000 for customer acquisition costs associated with the purchase of
selected assets from Universal Network Services, Inc., and the remaining
amount for customer acquisition costs associated with the purchase of ten
other customer bases. The fair values of these assets were determined by
estimating the present value of future cash flows to be generated by these
assets.
Because of the higher than expected attrition rates, the Company analyzed the
expected remaining lives of its customer base intangibles in accordance with
SFAS 121. Consequently, the Company has established new periods for
amortizing its customer base acquisition costs that it believes to be
reasonable estimates of the remaining lives of these intangibles. After the
Company's reassessment of amortization periods for its customer base
acquisition costs, the remaining useful lives assigned by the Company are
three years.
In connection with the revision of customer acquisition costs noted above,
the Company reviewed the carrying values of other long-lived assets, applying
the requirements of SFAS 121, and recognized impairments of $94,000 in other
intangible assets, $130,000 for a decommissioned switch to be disposed of,
and $69,000 for real estate to be disposed of.
NOTE 4 - MERGER EXPENSES AND RELATED CHARGES
The Company incurred merger expenses and other related charges of $271,000
during the quarter ended December 31, 1997. This amount consisted of
severance payments, professional service fees and billing expenses incurred
in connection with the integration and consolidation of the ETI and National
Teleservice, Inc. (NTI) mergers in May, 1997.
NOTE 5 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share was calculated in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share". For the three
months ended December 31, 1997 and 1996, weighted average shares outstanding
on a basic and diluted basis were 12,836,256 and 9,201,018, respectively.
For the nine months ended December 31, 1997 and 1996, weighted average shares
outstanding on a basic and diluted basis were 12,404,436 and 9,157,764,
respectively. For all periods presented, the common stock equivalents were
not considered because their effects would be anti-dilutive.
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the nine months ended December 31, 1997 and 1996, interest paid amounted
to $395,000 and $465,000, respectively. Income taxes paid by the Company
during the nine months ended December 31, 1997 and 1996 were $62,000 and
$368,000, respectively.
7
<PAGE>
NOTE 7 - PROPOSED MERGER
In December 1997, the Company signed a definitive agreement to merge with IXC
Communications, Inc. (IXC). Upon closing (which is expected to occur in the
second calendar quarter of 1998), IXC will acquire 100% of the outstanding
common stock of the Company and the Company will become a wholly owned
subsidiary of IXC. Under terms of the agreement, shareholders of the Company
will receive 0.2998 shares of IXC common stock for each share of the
Company's common stock. Warrants of the Company will be converted into
options to purchase shares of IXC common stock at the exchange ratio of
0.2998. In addition, upon closing of the transaction, the Company will change
its name to Eclipse Telecommunications, Inc. trading as Eclipse
Communications.
NOTE 8 - YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results
of operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
The Company does not currently have any information concerning the Year 2000
compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers does not successfully and
timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected.
NOTE 9 - CONSOLIDATION OF SUBSIDIARIES
On December 31, 1997 the Company merged its wholly owned subsidiaries into
the Company. The Company concurrently commenced to conduct business
operations under the registered name, "Eclipse Communications".
The former subsidiaries, and new divisional designations, are:
United Wats, Inc. (UWI): Eclipse Communications -- Affinity Division
Long Distance Telecom, Inc.: Eclipse Communications -- Mid-Atlantic
Division
Eastern Telecom International Corporation (ETI): Eclipse Communications -
Mid-Atlantic Division
National Teleservice, Inc. (NTI): Eclipse Communications -- Midwest
Division
The former headquarters of the Company in Baton Rouge, Louisiana represents
the Company's Southeast Division (Eclipse Communications - Southeast
Division).
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three months and nine months
ended December 31, 1997 and 1996 after giving effect to the May, 1997 merger
with National Teleservice, Inc. (NTI), which was accounted for as a
pooling-of-interests. This information should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this document.
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.
GENERAL
The Company has expanded rapidly as an ongoing result of its dual focus on
internal sales growth complemented by the addition of calling volume
generated through mergers and acquisitions.
In May 1997, the Company merged with Eastern Telecom International
Corporation (ETI). To consumate the merger, 3,633,272 shares of the
Company's common stock and cash payments of $1,500,000 were issued in
exchange for 100% of the outstanding stock of ETI. The transaction was
accounted for as a purchase and therefore ETI's results of operations are not
included in the three and nine month periods ended December 31, 1996.
Results for the nine months ended December 31, 1997 include ETI since the
date of acquisition.
In December 1997, the Company signed a definitive agreement to merge with IXC
Communications, Inc. (IXC). Upon closing (which is expected to occur in the
second calendar quarter of 1998), IXC will acquire 100% of the outstanding
common stock of the Company and the Company will become a wholly owned
subsidiary of IXC. Under terms of the agreement, shareholders of the Company
will receive 0.2998 shares of IXC common stock for each share of the
Company's common stock. Warrants of the Company will be converted into
options to purchase shares of IXC common stock at the exchange ratio of
0.2998. In addition, upon closing of the transaction, the Company will change
its name to Eclipse Telecommunications, Inc. trading as Eclipse
Communications.
RESULTS OF OPERATIONS
Revenues (inclusive of excise taxes and fees) for the three months ended
December 31, 1997 were $26,085,075 compared to $20,906,082 for the same
period in 1996, an increase of 24.8%. The increase for the quarter is
attributed primarily to the ETI acquisition. Without the acquisition,
quarterly revenues would have been approximately unchanged from the year
earlier quarter. Revenues for the nine months ended December 31, 1997 were
$78,463,517
9
<PAGE>
compared to $63,430,220 for the same period in 1996, an increase of 23.7%.
The increase for the nine month period is attributed to the ETI acquisition,
without which there would have been a decrease of approximately 6% in
revenues from the year earlier nine month period. Such decrease stemmed
primarily from higher than normal attrition rates in customer base
acquisitions (see Note 3 to Notes to Consolidated Financial Statements).
Transmission costs for the three months ended December 31, 1997 were
$16,478,531 or 63.2% of revenues. For the three months ended December 31,
1996, transmission costs were $13,969,971 or 66.8% of revenues. Transmission
costs for the nine months ended December 31, 1997 and 1996, were $49,227,012
and $41,953,727 respectively, or, 62.7% of revenues in 1997 and 66.1% in
1996. The reduction in transmission costs as a percent of revenues is
associated with increased calling volumes, the consolidation of the Company's
facilities and the renegotiation of certain underlying carrier agreements.
Selling, general and administrative expenses for the three and nine months
ended December 31, 1997 were $7,248,664 or 27.8% of revenues and $21,250,354
or 27.1% of revenues, respectively. This compared to $5,851,986 or 28.0% of
revenues and $16,604,849 or 26.2% of revenues for the three and nine months
ended December 31, 1996, respectively. Although revenues have increased,
SG&A expenses, as a percentage of revenues, have remained relatively flat due
to increases in commissions and personnel costs related to the continued
growth of the company and professional fees related to its on-going mergers
and acquisitions activities.
Depreciation and amortization expense for the three months ended December 31,
1997 and 1996, was $1,207,754 and $672,866, or 4.6% and 3.2% of revenues,
respectively. For the nine months ended December 31, 1997 and 1996,
depreciation and amortization expenses were $3,337,189 and $1,767,799, or
4.3% and 2.8%, respectively. The increase is related to the amortization of
the intangible of approximately $25,248,000 created by the merger with ETI in
May 1997.
Provision for losses on accounts receivable for the three months ended
December 31, 1997 and 1996 was $715,476 and $2,038,334, or 2.7% and 9.7% of
revenues, respectively. For the nine months ended December 31, 1997 and
1996, the provision for losses on accounts receivable was $2,354,485 and
$2,852,098, or 3.0% and 4.5% of revenues, respectively. During the three
month period ended December 31, 1996 the Company chose to de-emphasize its
wholesale operations and revise its policies associated with provision for
losses and write-off of accounts receivable which resulted in an additional
charge of $1,000,000 (after tax). For the nine month period ended December
31, 1997, the revised policy for provision for losses on accounts receivable
resulted in a higher provision for delinquent accounts as a percentage of
amounts owed by such accounts, resulting in the 3.0% provision for losses on
accounts receivable as a percentage of revenue noted above.
Merger expenses and related charges for the three months ended December 31,
1997 were $271,378 or 1.0% of revenues and $2,496,445 or 3.2% of revenues for
the nine months
10
<PAGE>
ended December 31,1997. For the three months ended December 31, 1997, these
expenses consisted of $171,000 for employee severance payments, $75,000 in
additional legal expenses, and $25,000 related to billing and other
integration expenses. Merger expenses and other related charges for the nine
month period ended December 31, 1997 consisted of $676,000 for severance
payments to former officers and various other employees of the Company,
$355,000 for integration, relocation and other facilities related charges,
$425,000 related to certain legal and regulatory matters and contingencies
and $1,040,000 related to financial advisory, legal, accounting and other
professional services incurred in connection with consummating the ETI and
NTI acquisitions.
During the three month period ended December 31, 1997 the Company incurred
non-cash charges related to a reduction in the carrying value of certain
intangible assets. During the quarter, current Management noted that the
attrition rates of the customer bases acquired under these acquisitions (the
revenue of which currently represents less than 10% of total Company revenue)
were substantially higher than the attrition expectations formerly
established when the bases were previously analyzed in the quarters ended
December 31, 1996 and March 31, 1997. As a result, applying the requirements
of Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121), Management revised estimates of the recoverability of these
intangible assets, resulting in a non-cash charge of $3,732,000. The
write-down included $1,137,000 for customer acquisition costs associated with
the purchase of selected assets from Value Tel, Inc., $431,000 for goodwill
and $1,000,000 for customer acquisition costs associated with the purchase of
selected assets from Universal Network Services, Inc., and the remaining
amount for customer acquisition costs associated with the purchase of ten
other customer bases. The fair values of these assets were determined by
estimating the present value of future cash flows to be generated by these
assets.
Non-recurring stock compensation expense related to the NTI merger was
$1,100,000 or 1.4% of revenues for the nine month period ended December 31,
1997. This was a non-cash charge related to the exercise of stock options by
an officer of NTI.
The Company incurred a net loss for the three months ended December 31, 1997
of $(4,382,286), compared to a net loss of $(5,000,125) for same period in
1996. For the nine month period ended December 31, 1997, the Company had a
net loss of $(6,109,948) compared to a net loss of $(4,113,944) for the same
period in 1996. The decrease in the net loss for the three months ended
December 31, 1997 as compared to the same period in 1996 is primarily
attributable to the decrease in transmission costs as a percent of revenues
and the reduction in the provision for losses on accounts receivable. These
reductions were partially offset by increases in depreciation and
amortization. The increase in the net loss for the nine month period ended
December 31, 1997, as compared to the same period in 1996, is due to the
merger expenses and other related charges and the stock compensation expense.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended December 31, 1997, the Company's cash flow provided
by operating activities was $4,226,499 compared to cash flow provided by
operating activities of $3,423,848 for the nine months ended December 31,
1996. For the nine months ended December 31, 1997, the Company's cash used
in investing activities was $2,887,728, compared to $3,465,557 used in
investing activities for the nine months ended December 31, 1996. The
primary use of cash in investing activities during both the nine months ended
December 31, 1997 and 1996, was related to the Company's acquisition program.
During the nine months ended December 31, 1997, the Company merged with ETI
and NTI and during the nine months ended December 31, 1996, the Company
acquired a customer base from Universal Network Services, Inc. Net cash
used in financing activities during the nine months ended December 31, 1997
was $2,213,920 compared to net cash provided by financing activities during
the same period of 1996 of $799,837. During the nine months ended December
31, 1997, the Company paid off the remaining balance owed under a term loan
entered into during May of 1996.
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
75% 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 was allowed to borrow $3,250,000 under the term loan
facility. The term loan was repayable in 36 equal monthly installments of
$90,278 plus accrued interest. The term loan bore interest at the prime rate
plus 3%. During the nine months ended December 31, 1997, the Company repaid
the remaining balance due under the term loan. Substantially all of the
assets of the Company are pledged as collateral under the credit facility.
12
<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
Form 8-K dated December 22, 1997 and filed on December 23, 1997
reporting under Item 5 Other Events.
13
<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: February 12, 1998 By: /s/Thomas G. Keefe
--------------------------------
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO FOR THE NINE MONTH PERIOD
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,087,067
<SECURITIES> 0
<RECEIVABLES> 16,592,857
<ALLOWANCES> 2,338,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,133,106
<PP&E> 9,295,680
<DEPRECIATION> 4,357,809
<TOTAL-ASSETS> 49,910,227
<CURRENT-LIABILITIES> 18,594,885
<BONDS> 1,024,739
0
0
<COMMON> 1,339
<OTHER-SE> 29,613,150
<TOTAL-LIABILITY-AND-EQUITY> 49,910,227
<SALES> 78,463,517
<TOTAL-REVENUES> 78,463,517
<CGS> 49,227,012
<TOTAL-COSTS> 49,227,012
<OTHER-EXPENSES> 32,208,934
<LOSS-PROVISION> 2,354,485
<INTEREST-EXPENSE> 336,269
<INCOME-PRETAX> (5,563,060)
<INCOME-TAX> 546,888
<INCOME-CONTINUING> (6,109,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,109,948)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
