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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSACTION 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 - 26728
TALK.COM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2827736
(State of incorporation) (I.R.S. Employer Identification No.)
12020 SUNRISE VALLEY DRIVE, SUITE 250, RESTON, VIRGINIA 20191
(Address of principal executive offices) (Zip Code)
(703) 391-7500
(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 period 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
78,445,181 shares of Common Stock, par value of $0.01 per share, were
issued and outstanding as of August 11, 2000.
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<PAGE>
TALK.COM INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 2000 (unaudited)
and December 31, 1999............................................................... 3
Consolidated Statements of Operations - Three and Six Months Ended June 30, 2000 and
1999 (unaudited)..................................................................... 4
Consolidated Statement of Stockholders' Equity - Six Months Ended June 30, 2000
(unaudited).......................................................................... 5
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999
(unaudited).......................................................................... 6
Notes to Consolidated Financial Statements (unaudited)............................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 18
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8K...................................................... 19
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
TALK.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 89,084 $ 78,937
Accounts receivable, trade, net of allowance for uncollectible accounts of $11,113
and $5,011, respectively 57,976 59,501
Advances to partitions and notes receivable 3,576 3,600
Prepaid expenses and other current assets 2,103 8,855
--------- ---------
Total current assets 152,739 150,893
--------- ---------
Property and equipment, net 69,942 57,335
Intangibles, net 1,534 1,068
Other assets 6,667 5,712
--------- ---------
Total assets $ 230,882 $ 215,008
========= =========
LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses:
Trade and other $ 46,001 $ 47,965
Partitions 2,621 1,676
Taxes and other 8,479 14,127
--------- ---------
Total current liabilities 57,101 63,768
--------- ---------
Convertible debt 84,950 84,985
Deferred revenue 17,549 21,000
--------- ---------
Total liabilities 159,600 169,753
--------- ---------
Commitments and contingencies
Contingent redemption value of common stock 51,668 5,152
--------- ---------
Stockholders' equity:
Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares issued and -- --
outstanding
Common stock - $.01 par value, 300,000,000 shares authorized; 66,972,960 shares
issued and outstanding 670 670
Additional paid-in capital 161,864 208,453
Accumulated deficit (126,811) (139,300)
Treasury stock, at cost (16,109) (29,720)
--------- ---------
Total stockholders' equity 19,614 40,103
--------- ---------
Total liabilities, contingencies and stockholders' equity $ 230,882 $ 215,008
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 135,758 $ 117,139 $ 291,817 $ 227,711
Cost of sales 88,511 72,557 180,202 146,400
--------- --------- --------- ---------
Gross profit 47,247 44,582 111,615 81,311
--------- --------- --------- ---------
Operating expenses (income):
General and administrative expenses 13,688 8,449 25,866 17,992
Promotional, marketing and advertising
expenses 32,512 21,193 69,163 35,791
Depreciation and amortization 1,986 1,461 3,842 2,912
Significant other income -- (1,500) -- (2,718)
--------- --------- --------- ---------
Total operating expenses 48,186 29,603 98,871 53,977
--------- --------- --------- ---------
Operating income (loss) (939) 14,979 12,744 27,334
Interest income (expense), net 360 (625) 651 32
Other expense, net (312) (316) (656) (994)
--------- --------- --------- ---------
Income (loss) before income taxes (891) 14,038 12,739 26,372
--------- --------- --------- ---------
Provision for income taxes -- -- 250 --
--------- --------- --------- ---------
Income (loss) before extraordinary gain (891) 14,038 12,489 26,372
Extraordinary gain -- -- -- 18,997
--------- --------- --------- ---------
Net income (loss) $ (891) $ 14,038 $ 12,489 $ 45,369
========= ========= ========= =========
--------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income (loss) before extraordinary gain $ (0.01) $ 0.23 $ 0.19 $ 0.44
Extraordinary gain -- -- -- 0.32
--------- --------- --------- ---------
Net income (loss) $ (0.01) $ 0.23 $ 0.19 $ 0.76
--------- --------- --------- ---------
Weighted average common shares outstanding 65,822 60,422 65,563 59,670
========= ========= ========= =========
Diluted earnings per share:
Income (loss) before extraordinary gain $ (0.01) $ 0.22 $ 0.19 $ 0.42
Extraordinary gain -- -- -- 0.30
--------- --------- --------- ---------
Net income (loss) $ (0.01) $ 0.22 $ 0.19 $ 0.72
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 65,822 63,360 67,334 62,894
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- PAID-IN ACCUMULATED -----------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 66,973 $670 $208,453 $(139,300) (2,120) $(29,720) $40,103
Net income -- -- -- 12,489 -- -- 12,489
Exercise of common
stock options -- -- (2,028) -- 316 4,437 2,410
Proceeds from rights
exercised -- -- 1,940 -- 653 9,154 11,093
Issuance of common
stock for convertible
debt -- -- 15 -- 2 20 35
Contingent redemption
value of common
stock -- -- (46,516) -- -- -- (46,516)
------ ---- -------- --------- ------ -------- -------
Balance, June 30, 2000 66,973 $670 $161,864 $(126,811) (1,149) $(16,109) $19,614
====== ==== ======== ========= ====== -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,489 $ 45,369
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Provision for bad debts 6,204 (232)
Depreciation and amortization 3,842 2,912
Deferred revenue (3,451) (3,700)
Extraordinary gain
-- (18,997)
Changes in assets and liabilities, net:
(Increase) decrease in:
Accounts receivable, trade (4,501) 898
Advances to partitions and notes receivable 24 1,582
Prepaid expenses and other current assets 6,752 112
Other assets (955) 1,676
Increase (decrease) in:
Accounts payables and accrued expenses (6,769) (30,497)
Other liabilities -- (1,850)
-------- --------
Net cash provided by (used in) operating activities 13,635 (2,727)
-------- --------
Cash flows from investing activities:
Capital expenditures (16,476) (2,846)
Acquisition of intangibles (515) --
Sale of securities, net -- 89,649
-------- --------
Net cash provided by (used in) investing activities (16,991) 86,803
-------- --------
Cash flows from financing activities:
Repayment of margin account indebtedness -- (49,621)
Acquisition of convertible debt -- (65,423)
Proceeds from exercise of options and warrants 2,410 17,705
Proceeds from exercise of rights 11,093 --
AOL investment -- 55,000
Acquisition of treasury stock -- (7,686)
-------- --------
Net cash provided by (used in) financing activities 13,503 (50,025)
-------- --------
Net increase in cash and cash equivalents 10,147 34,051
Cash and cash equivalents, beginning of period 78,937 3,063
-------- --------
Cash and cash equivalents, end of period $ 89,084 $ 37,114
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIC PRESENTATION:
The consolidated financial statements include the accounts of Talk.com Inc.
and its wholly-owned subsidiaries, (the "Company") and have been prepared as if
the entities had operated as a single consolidated group since their respective
dates of incorporation. All intercompany balances and transactions have been
eliminated.
The consolidated financial statements and related notes thereto as of June
30, 2000 and for the three and six months ended June 30, 2000 and 1999 are
presented as unaudited but in the opinion of management include all adjustments
necessary to present fairly the information set forth therein. These adjustments
consist solely of normal recurring accruals. The consolidated balance sheet
information for December 31, 1999 was derived from the audited financial
statements included in the Company's Form 10-K, as amended. These interim
financial statements should be read in conjunction with the Form 10-K report, as
amended. The interim results are not necessarily indicative of the results for
any future periods.
2. AOL AGREEMENTS:
Since 1997, the Company has negotiated a number of agreements and
amendments to its agreements with America Online Inc. ("AOL") for the marketing
and sale of telecommunications services to AOL subscribers. A substantial
amendment to the AOL agreement in January 1999 provided for: quarterly payments
by the Company to AOL during the long distance exclusivity period of the
agreement, with fixed quarterly payments ranging from $10.0 to $15.0 million
($19.0 million after July 1, 2000 if AOL elects to provide certain additional
marketing and promotions to the Company) until June 30, 2001 and quarterly
payments thereafter at a fixed 5% of the Company's long distance revenues from
AOL subscribers in the quarter under the agreement; quarterly payments by the
Company to AOL, after termination of the long distance exclusivity period and so
long as AOL continues to provide certain levels of marketing and promotions to
the Company under the agreement, at an annual declining fixed percentage of the
Company's long distance revenues from AOL subscribers under the agreement,
starting at 5% and declining by one percentage point each year to 1%; the
elimination of the Company's obligation to make bounty and current
profit-sharing payments to AOL; alteration of the terms of the online and
offline marketing arrangements between the Company and AOL; extension of the
term of the AOL agreement, including the exclusivity period, until June 30,
2003, although AOL has the right, in each year beginning in 2000, to elect, on
or before May 1 of such year, to end the Company's long distance exclusivity
period as of June 30 of such year; elimination of AOL's rights to receive
further warrants to purchase Common Stock based upon customers gained from the
AOL subscriber base; AOL's contribution of up to $4.0 million (up to $6.0
million if the Company pays $19.0 million as noted above) per quarter for
offline marketing; and establishment of the framework for the Company to offer
additional services and products to AOL subscribers. By an amendment dated as of
June 30, 2000, AOL agreed to give the Company a $1.0 million credit in each of
the second and third quarters of 2000 against amounts otherwise payable by the
Company under the AOL agreement. By a further amendment dated as of August 1,
2000, in consideration of AOL's agreement to provide certain additional
marketing in the last five months of 2000, the Company agreed to make additional
payments to AOL of $3.0 million in August, 2000 and $1.0 million in each of the
months in the fourth quarter of 2000, which amounts will be credited against the
Company's payment obligations in any quarter for which the Company is required
to pay at the quarterly rate of $19.0 million, as discussed above.
AOL did not elect to exercise its right to terminate the long distance
exclusivity as of June 30, 2000 and, accordingly, the exclusivity period for
long distance will continue through at least June 30, 2001. AOL did provide the
Company with notice that its exclusivity as to wireless services would terminate
on July 1, 2000, although the Company's right to offer wireless services will
continue on a non-exclusive basis.
On January 5, 1999, pursuant to an Investment Agreement between AOL and the
Company, AOL purchased a total of 4,121,372 shares of Common Stock of the
Company for $55.0 million in cash and the surrender of rights to purchase
5,076,016 shares of Common Stock of the Company pursuant to various warrants
held by AOL. AOL agreed to end further vesting under the outstanding performance
warrant and retained vested warrants exercisable for 2,721,984 shares of Common
Stock. See Note 4 for a discussion of certain reimbursement obligations of the
Company in favor of AOL.
7
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. RELATED PARTY TRANSACTIONS:
On January 5, 1999, Mr. Daniel Borislow, a founder of the Company and its
Chairman of the Board and Chief Executive Officer, resigned as a director and
officer of the Company. The Company entered into various agreements and engaged
in various transactions with Mr. Borislow and certain entities in which he or
his family had an interest.
In connection with Mr. Borislow's resignation, the Company paid $1.0
million to Mr. Borislow, assigned certain automobiles to him, and continued
certain of his health and medical benefits and director and officer insurance.
The Company also agreed that, so long as Mr. Borislow owned beneficially at
least two percent (2%) of the Common Stock (on a fully diluted basis), Mr.
Borislow and trusts for the benefit of his children would be entitled to:
registration rights with respect to their shares of Common Stock, the right to
require the Company to use a portion of proceeds from any public or private sale
of debt securities, excluding borrowings from a commercial bank or other
financial institution, by the Company to repurchase debt securities of the
Company owned by Mr. Borislow or the trusts for the benefit of his children, and
the right to require the Company to use the proceeds from the exercise of stock
options by other employees or the exercise of rights, to repurchase Common Stock
owned by Mr. Borislow or the trusts for the benefit of his children. The Company
also agreed that, so long as Mr. Borislow had such beneficial ownership, the
Company would not, without the prior written consent of Mr. Borislow and subject
to certain exceptions: (a) engage in certain significant corporate transactions,
including the sale or encumbrance of substantially all of its assets, mergers
and consolidations and certain material acquisitions, or, (b) for a period of 18
months from the agreement date, offer or sell any of its Common Stock unless and
until Mr. Borislow and the trusts have sold or otherwise disposed of all of the
shares of Common Stock held by him on the agreement date. In turn, Mr. Borislow
terminated his employment with the Company and agreed not to compete with the
Company for at least one year. Mr. Borislow also agreed to guarantee up to $20.0
million of the Company's obligations in connection with the AOL investment noted
above. As of June 30, 2000, Mr. Borislow and the two trusts for the benefit of
Mr. Borislow's children, which have the ability to distribute Common Stock to
Mr. Borislow, held less than an aggregate of 2% of the outstanding Common Stock.
Accordingly, the Company believes that the restrictions described above no
longer apply to the Company
During 1999, the Company (a) purchased from Mr. Borislow, and two trusts
for the benefit of Mr. Borislow's children, $85.9 million aggregate principal
amount of the Company's Convertible Notes for $72.3 million in cash; (b)
exchanged the remaining $53.7 million principal amount of subordinated notes of
Communication TeleSystems International d/b/a WorldxChange Communications, which
were included in other assets at December 31, 1998, to a trust for the benefit
of Mr. Borislow's children for $62.5 million aggregate principal amount of the
Company's Convertible Notes and (c) purchased $9.0 million aggregate principal
amount of the Company's Convertible Notes for $6.9 million in Common Stock. Also
during 1999, pursuant to the agreements with Mr. Borislow as described above the
Company purchased from Mr. Borislow approximately 639,000 shares of Common Stock
for approximately $7.7 million with proceeds from the exercise of stock options
by other employees.
On January 6, 2000, the Company repurchased from Mr. Borislow real property
previously sold to Mr. Borislow constituting the Company's facilities in New
Hope, Pennsylvania for $2.5 million.
4. STOCKHOLDERS' EQUITY:
CONTINGENT REDEMPTION VALUE OF COMMON STOCK
Under the terms of the Investment Agreement with AOL (see Note 2 above),
the Company agreed to reimburse AOL for losses AOL may incur on the sale of any
of the shares of Company common stock held by AOL during the period from June 1,
1999 through September 30, 2000. The Company has the first right to purchase any
of the shares of Common Stock held by AOL at the market value on the day that
AOL notifies the Company of its intent to sell any of the shares plus an amount,
if any, equal to the Company's reimbursement obligation described below. The
reimbursement amount would be determined by multiplying the number of shares, if
any, that AOL sells during
8
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the applicable period by the difference between the purchase price per share
paid by AOL, or $19 per share, and the price per share that AOL sells the shares
for, if less than $19 per share. The reimbursement amount may not exceed $14 per
share for 2,894,737 shares or $11 per share for 1,226,635 shares. Accordingly,
the maximum amount payable to AOL as reimbursement on the sale of AOL's shares
would be approximately $54.0 million plus AOL's reasonable expenses incurred in
connection with the sale.
By an amendment dated as of August 2, 2000, the period during which AOL may
exercise its rights to reimbursement for losses on the sale of stock, as
described above, was extended from September 30, 2000 to September 30, 2001.
Also as of August 2, 2000, the Company received a letter from AOL confirming
that AOL does not intend to exercise such rights to reimbursement for shortfalls
earlier than December 31, 2000.
The Company has the option of issuing a six-month 10% note payable to AOL
to satisfy the reimbursement amount or other amounts payable on exercise of its
first refusal rights. Assuming AOL were to sell all of its shares subject to the
Company's reimbursement obligation at the closing price of Common Stock as of
June 30, 2000, the reimbursement amount would be approximately $51.7 million. At
June 30, 2000, the Company recorded $51.7 million for the contingent redemption
value of this Common Stock with a corresponding reduction in additional paid-in
capital. AOL also has the right on termination of long distance exclusivity
under the AOL marketing agreements to require the Company to repurchase the
warrants to purchase 2,721,984 shares of Common Stock of the Company held by AOL
for an aggregate price of $36.3 million, which repurchase price can be paid in
Common Stock or cash (provided that some portion of the repurchase price may be
payable in a quarterly amortization, two-year promissory note of the Company if
the repurchase price exceeds the then current valuation of the warrants being
purchased). AOL did not elect to terminate the long distance exclusivity as of
June 30, 2000, but can so elect as of June 30, 2001 and 2002. The Company has
pledged the stock of its subsidiaries and has agreed to fund an escrow account
of up to $35.0 million from 50% of the proceeds of any debt financing, other
than a bank, receivable or other asset based financing of up to $50.0 million,
to secure its obligations under the Investment Agreement with AOL. AOL has
agreed that it will subordinate its security interests to permit the
securitization of certain future financings by the Company. Mr. Borislow has
agreed to guarantee up to $20.0 million of the Company's reimbursement
obligations under the Investment Agreement with AOL.
5. LEGAL PROCEEDINGS:
On June 16, 1998, a purported shareholder class action was filed in the
United States District Court for the Eastern District of Pennsylvania against
the Company and certain of its officers alleging violation of the securities
laws in connection with certain disclosures made by the Company in its public
filings and seeking unspecified damages. Thereafter, additional lawsuits making
substantially the same allegations were filed by other plaintiffs in the same
court. A motion to dismiss was granted as to certain officers of the Company and
denied as to the Company. There are currently no officers of the Company who are
a party to these actions. On July 19, 2000 a class was certified. The Company
believes the allegations in the complaints are without merit and intends to
defend the litigations vigorously. The Company also is a party to certain legal
actions arising in the ordinary course of business.
The Company believes that the ultimate outcome of the foregoing actions
will not result in liability that would have a material adverse effect on the
Company's financial condition or results of operations.
6. ACQUISITION:
On August 9, 2000, a wholly owned subsidiary of the Company merged with and
into Access One Communications Corp., a New Jersey corporation ("Access One"),
pursuant to the Agreement and Plan of Merger, dated as of March 24, 2000,
between the Company and Access One. As a result of such merger, Access One
became a wholly owned subsidiary of the Company and Access One stockholders
received 0.571428 shares of the Company's common stock in exchange for each
share of Access One common stock held by such stockholders at the effective time
of the Merger, or an aggregate of approximately 12.2 million shares of the
Company's common stock, and outstanding options and warrants to purchase shares
of Access One common stock converted to options and warrants to purchase an
aggregate of 2.1 million shares of the Company's common stock. Access One is a
private, local telecommunications service provider to nine states in the
southeastern United States. The merger will be accounted for under the purchase
method of accounting.
9
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
Talk.com Inc., through its subsidiaries, provides telecommunications
services to residential and business customers throughout the United States,
primarily through its electronic billing and customer service platform. Talk.com
Inc. and its subsidiaries are sometimes together referred to as the "Company"
and as "Talk.com".
The Company's telecommunications service offerings include long
distance and local outbound service, inbound toll-free service and dedicated
private line services for data. The Company announced late in 1999 that, given
the new regulatory opportunities that have developed, it planned to expand its
product mix by also offering local service bundled with long distance service.
On August 9, 2000, the Company merged with and into Access One Communications
Corp. in a statutory merger for approximately 14.3 million shares of Company
common stock (including assumed options and warrants). Access One is a private,
Florida-based, local telecommunications service provider to nine states in the
southeastern United States. In connection with the acquisition agreement entered
into with Access One in March 2000, the Company entered into an agreement under
which Access One agreed to provide certain telecommunications services,
including local services, to the Company. Using this agreement, the Company
recently began offering local telecommunication service in Florida, Georgia,
North Carolina, South Carolina, Kentucky, Louisiana, Mississippi, Tennessee,
Alabama and New York in the second quarter of 2000. The Company is also offering
a bundle of long distance and local service to small business and select
residential customers in the nine southeastern states serviced by Access One,
through the Company's marketing partnerships and new direct channels.
The Company believes that it has an opportunity to capture additional
market share and accelerate future growth through its offerings of local and
bundled local and long distance telecommunications services. In connection with
its rollout of local services, the Company anticipates that its marketing and
promotional expenditures will continue to increase on an absolute basis and as a
percentage of revenue during the remainder of the year. With the extension of
the Company's long distance exclusivity period with AOL until at least June
2001, the Company also will continue to expend significant marketing dollars
with AOL. Accordingly, the Company believes that the projected increase in
marketing and advertising expenditures is expected to significantly reduce the
Company's earnings in 2000.
10
<PAGE>
TALK.COM INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table set forth for the periods indicated certain financial data
as a percentage of sales:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- ---------------------
2000 1999 2000 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.2 61.9 61.7 64.3
------ ------ ------ ------
Gross profit 34.8 38.1 38.3 35.7
------ ------ ------ ------
Operating expenses (income):
General and administrative expenses 10.1 7.2 8.9 7.9
Promotional, marketing and
expenses 23.9 18.1 23.7 15.7
Depreciation and amortization 1.5 1.3 1.3 1.3
Significant other income -- (1.3) -- (1.2)
------ ------ ------ ------
Total operating expenses 35.5 25.3 33.9 23.7
------ ------ ------ ------
Operating income (.7) 12.8 4.4 12.0
Interest income (expense), net .3 (.5) .2 --
Other income (expense), net (.3) (.3) (.2) (.4)
------ ------ ------ ------
Income before income taxes (.7) 12.0 4.4 11.6
Provision for income taxes -- -- -- --
------ ------ ------ ------
Income before extraordinary gain (.7) 12.0 4.4 11.6
Extraordinary gain -- -- -- 8.3
------ ------ ------ ------
Net income (.7)% 12.0% 4.4% 19.9%
====== ====== ====== ======
</TABLE>
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999
Sales
Sales increased by 16.0% to $135.8 million for the quarter ended June
30, 2000 from $117.1 million for the quarter ended June 30, 1999. This increase
was primarily a result of an increase in the number of online customers,
increased revenue per online customer and sales from an international wholesale
business that began in the third quarter of 1999. The increase in online sales
was partially offset by a decrease in the Company's other sales, including
partition sales, as the Company has continued to focus primarily on developing
its online sales and customer base. The addition of new marketing partners has
contributed to the growth in the online business. While the Company believes it
offers competitively priced services, sales could be adversely affected by the
intense competition in this industry. In addition, the Company's ability to
provision customers, which is adversely affected by PIC freezes implemented by
the local telephone companies, directly affects sales. Also, as part of the
Company's focus on its higher margin core business of domestic long distance and
local telecommunication services, the Company expects to exit the international
wholesale business due to the low gross profit margins.
Beginning in the second quarter of 2000, there was a significant
reduction in the principal marketing opportunity provided to the Company by AOL,
which has resulted in a decline in gross additions of new online customers. In
addition, the Company instituted new collection procedures in the first quarter
of 2000, which the Company believes contributed to customer terminations during
the introduction period at a rate greater than the Company's historical churn
experience. With a reduction in the online sales from the interruption of its
primary AOL marketing channel, the increased churn and the continued decline in
other sales (including the Company's reduction of its international wholesale
business), the Company experienced a reduction in total sales for the second
quarter ended June 30, 2000 compared to the first quarter ended March 31,2000.
In addition to the matters discussed above, there can be no assurance that the
Company will continue to increase sales on a quarter-to-quarter or year-to-year
basis.
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TALK.COM INC. AND SUBSIDIARIES
A significant percentage of the Company's revenues in the quarters
ended June 30, 2000 and 1999 were derived from long distance telecommunications
services provided to customers who were obtained under the AOL agreement and a
significant decline in its AOL subscribers that is not offset by growth in
non-AOL subscribers could have a significant effect on the Company's results of
operations and cash flow. While the Company's rights to market long distance
exclusively under the AOL agreement do not expire until June 30, 2003, AOL has
the right in each year beginning in 2000, to elect, on or before May 1 of such
year, to permit others to market long distance telecommunications services after
June 30 of such year to AOL's subscribers. Notwithstanding any such AOL
election, the Company's rights to continue to market its services to AOL
subscribers on a non-exclusive basis, but with significant marketing rights,
would continue until June 30, 2003. AOL did not exercise its right as to 2000
and, accordingly, the exclusivity period for long distance will continue through
at least June 2001 and the Company will be obliged to make fixed quarterly
payments during the year ending June 30, 2001 of at least $15.0 million ($18.0
million in the last two quarters of 2000 before a $1 million credit from AOL in
the third quarter) to AOL. AOL did elect to terminate the Company's exclusive
right to offer wireless services to AOL subscribers, but the Company's right to
offer wireless services will continue on a non-exclusive basis. The Company
plans to continue to aggressively market its services to AOL subscribers, and
also plans, as discussed above, to increase its efforts to expand its non-AOL
base of online customers.
Cost of Sales
Cost of sales increased by 21.9% to $88.5 million in the quarter ended
June 30, 2000 from $72.6 million in the quarter ended June 30, 1999. This
increase was mainly due to an increase in network costs associated with the
increase in AOL sales this quarter as compared to the same quarter last year and
higher network costs associated with the international wholesale business. In
addition, the Company provided $2.8 million more in bad debt expense during the
quarter ended June 30, 2000 over the same quarter last year. This increase is to
provide for certain aged receivables that are now deemed not collectible. As a
percentage of sales, cost of sales has increased to 65.2% as compared to 61.9%
for the same quarter last year. The increase was primarily due to the increased
network costs and bad debt reserves, as noted above.
Gross Profit
Gross profit decreased to 34.8% of sales in the quarter ended June 30,
2000 from 38.1% in the quarter ended June 30, 1999. The decrease in the gross
profit percentage was primarily due to higher network costs and additional
provisions for bad debt, as noted above. Due to higher network costs, increased
bad debt expense, lower gross profit on the international wholesale business,
and reduced profits on other sales, as well as the intensification of price
competition for the Company's products, the Company may continue to experience
downward pressure on gross profits in the future.
General and Administrative Expenses
General and administrative expenses increased by 63.1% to $13.7 million
in the quarter ended June 30, 2000 from $8.4 million in the quarter ended June
30, 1999. As a percentage of sales, general and administrative expenses
increased to 10.1 % for the quarter ended June 30, 2000 from 7.2 % for the
quarter ended June 30, 1999. The increase was due primarily to increased costs
associated with additional personnel hired to support the Company's growth,
including its expansion into the local services business, and an increase in
costs for professional services.
Promotional, Marketing and Advertising Expenses
During the quarter ended June 30, 2000, the Company incurred $32.5
million in promotional, marketing and advertising expenses as compared to $21.2
million in the quarter ended June 30, 1999. This represents an increase of 53.3%
over the same period last year, and relates to the Company's continued effort to
expand its online customer base as well as higher promotional expenses and an
increase in fixed payments to AOL. The Company expects that these expenses will
continue to increase as the Company implements its plans noted above to
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TALK.COM INC. AND SUBSIDIARIES
aggressively pursue local subscribers and line growth, particularly non-AOL
customers. In addition, fixed payments to AOL for the quarter ended June 30,
2000 increased by $2.0 million over the same quarter in 1999. Fixed payments to
AOL in the third and fourth quarters of 2000, after taking into account a third
quarter credit from AOL and increased payments in both quarters of $3.0 million
for AOL's agreement to provide certain additional marketing in the last five
months of 2000, will be $17.0 and $18.0 million, respectively. Promotional,
marketing and advertising expense for the quarter ended June 30, 2000 compared
to the quarter ended March 31, 2000 were reduced due to less advertising
associated with AOL because of the second quarter reduction in the principal AOL
marketing opportunity, but were offset by the costs associated with local
marketing.
Depreciation and Amortization
Depreciation and amortization for the quarter ended June 30, 2000 was
$2.0 million, an increase of 35.9% compared to $1.5 million for the same period
in 1999. This increase is related to the continued purchase of property and
equipment to support the Company's ongoing growth.
Significant Other Income
During the quarter ended June 30, 1999, the Company sold the last
remaining division of TSFL Holdings, Inc. (formerly Symetrics Industries, Inc.),
resulting in a gain of $1.5 million.
Interest Income (Expense), net
Net interest income was $360,000 for the quarter ended June 30, 2000 as
compared to net interest expense of $625,000 for the quarter ended June 30,
1999. This represents an increase of $985,000 from the second quarter of last
year due to the higher level of cash and cash equivalents and lower debt levels
in the 2000 period. Net interest income consists primarily of interest income
earned on cash and cash equivalents offset by interest expense related to the
Company's convertible debt.
Other Expense, net
Net other expense was $312,000 for the quarter ended June 30, 2000 as
compared to $316,000 for the quarter ended June 30, 1999.
Provision for Income Taxes
The Company did not record a provision for income taxes in the quarter
ended June 30, 2000. In the quarter ended March 31, 2000 the Company recorded
$250,000 related to the expected payment of federal income taxes on alternative
minimum taxable income this fiscal year. Although the Company had net operating
loss carryforwards sufficient to offset expected taxable income for 2000, the
loss carryforwards can only reduce up to 90% of alternative minimum taxable
income.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Sales
Sales increased by 28.2% to $291.8 million for the six months ended
June 30, 2000 from $227.7 million for the six months ended June 30, 1999. This
increase was primarily a result of an increase in the number of online
customers, sales from an international wholesale business that began in the
third quarter of 1999, and increased revenue per online customer. The increase
in online sales was partially offset by a decrease in the Company's other sales,
including partition sales, as the Company has continued to focus primarily on
developing its online sales and customer base. The addition of new marketing
partners has contributed to the growth in the online business. While
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TALK.COM INC. AND SUBSIDIARIES
the Company believes it offers competitively priced services, sales could be
adversely affected by the intense competition in this industry. In addition, the
Company's ability to provision customers, which is adversely affected by PIC
freezes implemented by the local telephone companies, directly affects sales.
Beginning in the second quarter of 2000, there was a significant
reduction in the principal marketing opportunity provided to the Company by AOL,
which has resulted in a decline in gross additions of new online customers. In
addition, the Company instituted new collection procedures in the first quarter
of 2000, which the Company believes contributed to customer terminations during
the introduction period at a rate greater than the Company's historical churn
experience. With a reduction in the online sales from the interruption of its
primary AOL marketing channel, the increased churn and the continued decline in
other sales (including the Company's reduction of its international wholesale
business), the Company experienced a reduction in total sales for the second
quarter. In addition to the matters discussed above, there can be no assurance
that the Company will continue to increase sales on a quarter-to-quarter or
year-to-year basis.
A significant percentage of the Company's revenues in the six months
ended June 30, 2000 and 1999 were derived from long distance telecommunications
services provided to customers who were obtained under the AOL agreement and a
significant decline in its AOL subscribers that is not offset by growth in
non-AOL subscribers could have a significant effect on the Company's results of
operations and cash flow. While the Company's rights to market long distance
exclusively under the AOL agreement do not expire until June 30, 2003, AOL has
the right in each year beginning in 2000, to elect, on or before May 1 of such
year, to permit others to market long distance telecommunications services after
June 30 of such year to AOL's subscribers. Notwithstanding any such AOL
election, the Company's rights to continue to market its services to AOL
subscribers on a non-exclusive basis, but with significant marketing rights,
would continue until June 30, 2003. AOL did not exercise its right as to 2000
and, accordingly, the exclusivity period for long distance will continue through
at least June 2001 and the Company will be obliged to make fixed quarterly
payments during the year ending June 30, 2001 of at least $15.0 million ($18.0
million in the last two quarters of 2000 before a $1.0 million credit from AOL
in the third quarter) to AOL. AOL did elect to terminate the Company's exclusive
right to offer wireless services to AOL subscribers, but the Company's right to
offer wireless services will continue on a non-exclusive basis. The Company
plans to continue to aggressively market its services to AOL subscribers, and
also plans, as discussed above, to increase its efforts to expand its non-AOL
base of online customers.
Cost of Sales
Cost of sales increased by 23.1 % to $180.2 million in the six months
ended June 30, 2000 from $146.4 million in the six months ended June 30, 1999.
This increase was due to the overall increase in sales for the six months ended
June 30, 2000 as compared to the same period last year. As a percentage of
sales, cost of sales for the six months in 2000 decreased to 61.7% as compared
to 64.3% for the same period last year. The decrease was primarily due to lower
network usage costs for services on the Company's OBN network on a per minute
basis and lower partition costs due to the decrease in other sales, offset by
increased bad debt and by higher network costs associated with the international
wholesale business, as noted above.
Gross Profit
Gross profit increased to 38.3% of sales in the six months ended June
30, 2000 from 35.7% in the six months ended June 30, 1999. The increase in the
gross profit percentage was primarily due to lower network usage costs for OBN
services on a per minute basis and lower partition costs due to the decrease in
other sales, as noted above. However, due to higher network costs, increased bad
debt expense and reduced profits on other sales, as well as the intensification
of price competition for the Company's products, the Company may continue to
experience downward pressure on gross profits in the future.
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TALK.COM INC. AND SUBSIDIARIES
General and Administrative Expenses
General and administrative expenses increased by 43.9% to $25.9
million in the six months ended June 30, 2000 from $18.0 million in the six
months ended June 30, 1999. As a percentage of sales, general and administrative
expenses increased to 8.9% for the six months ended June 30, 2000 from 7.9 % for
the six months ended June 30, 1999. The increase was due primarily to costs
associated with additional personnel hired to support the Company's continuing
growth, including its expansion into the local services business.
Promotional, Marketing, and Advertising Expenses
During the six months ended June 30, 2000, the Company incurred $69.2
million in promotional, marketing and advertising expenses as compared to $35.8
million in the six months ended June 30, 1999. This represents an increase of
93.3% over the same period last year, and relates to the Company's continued
effort to expand its online customer base as well as higher promotional expenses
and an increase in the fixed payment to AOL. The Company expects that these
expenses will continue to increase as the Company implements its plans noted
above to aggressively pursue new local subscribers and line growth,
particularly non-AOL customers. In addition, fixed payments to AOL for the
six months ended June 30, 2000 increased by $4.0 million over the same period in
1999. Fixed payments to AOL in the third and forth quarters of 2000, after
taking into account a third quarter credit from AOL and increased payments in
both quarters of $3.0 million for AOL's agreement to provide certain additional
marketing in the last five months of 2000, will be $17.0 and $18.0 million,
respectively.
Depreciation and Amortization
Depreciation and amortization for the six months ended June 30, 2000
was $3.8 million, an increase of 31.9% compared to $2.9 million for the same
period in 1999. This increase is related to the continued purchase of property
and equipment to support the Company's ongoing growth.
Significant Other Income
During the six months ended June 30, 1999, the Company sold TSFL
Holdings, Inc. (formerly Symetrics Industries, Inc.), resulting in a gain of
$2.7 million.
Interest Income (Expense), net
Net interest income was $651,000 for the six months ended June 30, 2000
as compared to $32,000 for the six months ended June 30, 1999. This is an
increase of $619,000 from the six months of last year due to higher levels of
cash and cash equivalents and lower debt levels in the 2000 period. Net interest
income consists primarily of interest income earned on cash and cash equivalents
offset by interest expense related to the Company's convertible debt.
Other Expense, net
Net other expense was $656,000 for the six months ended June 30, 2000
as compared to $994,000 for the six months ended June 30, 1999. This represents
a 34.0% decrease compared to the six months of last year.
Provision for Income Taxes
The Company recorded a $250,000 provision for income taxes in the six
months ended June 30, 2000 related to the expected payment of federal income
taxes on alternative minimum taxable income this fiscal year. Although the
Company had net operating loss carryforwards sufficient to offset expected
taxable income for 2000, the loss carryforwards can only reduce up to 90% of
alternative minimum taxable income.
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TALK.COM INC. AND SUBSIDIARIES
Extraordinary Gain
During the six months ended June 30, 1999 the Company recorded an
extraordinary gain of $19.0 million from the acquisition of the Company's
convertible debt at a discount from its aggregate principal amount.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $89.1 million of cash and cash
equivalents and $58.0 million in net trade accounts receivable. The Company's
working capital was $95.6 million at June 30, 2000 and $87.1 million at December
31, 1999. This increase in working capital is primarily a result of cash
generated from the Company's operations and the receipt of $11.1 million in
connection with the exercise of outstanding Common Stock rights prior to their
expiration in February 2000, offset in part by $16.5 million in capital
expenditures for the purchase of property and equipment.
Net cash provided by operating activities was $13.6 million for the six
months ended June 30, 2000. Net cash used in operating activities was $2.7
million for the six months ended June 30, 1999. For the six months ended June
30, 2000, the major contributors to the net cash provided by operating
activities were net income of $12.5 million, a decrease in prepaid expenses and
other current assets of $6.8 million and adjustments to net income for non-cash
items of $6.6 million. This was offset by increases in both net trade accounts
receivable and other assets of $4.5 million and $1.0 million, respectively, and
a decrease in accounts payable and accrued expenses of $6.8 million. For the six
months ended June 30, 1999, net cash used in operating activities was mainly
generated by a reduction in accounts payable and accrued expenses of $32.4
million and an adjustment for the extraordinary gain of $19.0 million recorded
from the acquisition of the Company's convertible debt offset by net income of
$45.4 million and decreases in several other assets of $4.3 million.
Net cash used in investing activities of $17.0 million related primarily to
the purchase of property and equipment during the six months ended June 30,
2000. For the six months ended June 30, 1999 the net cash provided by investing
activities was mainly from the sale of marketable securities of $89.6 million.
The $13.5 million net cash provided by financing activities for the six
months ended June 30, 2000 was received from the exercise of employee stock
options and common stock purchase rights. For the six months ended June 30,
1999, the net cash used in financing activities totaled $50.0 million. On
January 5, 1999, pursuant to an Investment Agreement between AOL and the
Company, AOL made a significant equity investment in the Company, acquiring
4,121,372 shares of Common Stock for $55.0 million in cash and the surrender of
rights to acquire up to 5,076,016 shares of Common Stock pursuant to various
warrants held by AOL. Additional financing activities generated $10.0 million
from the exercise of employee stock options. These activities in 1999 were
offset by the acquisition of convertible debt of $65.4 million and the repayment
of margin account indebtedness of $49.6 million.
Under the terms of the Investment Agreement with AOL, the Company agreed to
reimburse AOL for losses AOL may incur on the sale of any of the 4,121,372
shares of Company common stock held by AOL during the period from June 1, 1999
through September 30, 2000. The reimbursement amount would be determined by
multiplying the number of shares, if any, that AOL sells during the applicable
period by the difference between the purchase price per share paid by AOL, or
$19 per share, and the price per share that AOL sells the shares for, if less
than $19 per share. The reimbursement amount may not exceed $14 per share for
2,894,737 shares or $11 per share for 1,226,635 shares. Accordingly, the maximum
amount payable to AOL as reimbursement on the sale of AOL's shares would be
approximately $54.0 million plus AOL's reasonable expenses incurred in
connection with the sale. The Company has the option of issuing a six-month 10%
note payable to AOL to satisfy the reimbursement amount or other amounts payable
on exercise of its first refusal rights. Assuming AOL were to sell all of its
shares subject to the Company reimbursement obligation at the closing price of
Company common stock as of August 10, 2000, the reimbursement amount would be
approximately $53.8 million. AOL also has the right, on termination of the
Company's long distance exclusivity under its marketing agreement with AOL, to
require the Company to repurchase warrants held by AOL to purchase 2,721,984
shares of Company common stock for $36.3 million, which repurchase price can be
paid in common stock or cash (provided that some portion of the repurchase price
may be payable in a quarterly amortization, two-
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TALK.COM INC. AND SUBSIDIARIES
year promissory note of the Company if the repurchase price exceeds the then
current valuation of the warrants being purchased). The Company has pledged the
stock of its subsidiaries and has agreed to fund an escrow account of up to
$35.0 million from 50% of the proceeds of any debt financing, other than a bank,
receivable or other asset based financing of up to $50.0 million, to secure its
obligations under the Investment Agreement with AOL. Mr. Daniel Borislow, former
Chairman of the Board and Chief Executive Officer of the Company, has agreed to
guarantee up to $20.0 million of the Company's reimbursement obligations under
the Investment Agreement with AOL. By an amendment dated as of August 2, 2000,
the period during which AOL may exercise its rights to reimbursement for losses
on the sale of stock, as described above, was extended from September 30, 2000
to September 30, 2001. Also as of August 2, 2000, the Company received a letter
from AOL confirming that AOL does not intend to exercise such rights to
reimbursement for shortfalls earlier than December 31, 2000.
Except with respect to receivables from international wholesale sales,
which are conducted with a small number of international wholesale purchasers,
the Company generally does not have a significant concentration of credit risk
with respect to net trade accounts receivable, due to the large number of end
users comprising the Company's customer base and their dispersion across
different geographic regions. The Company maintains reserves for potential
credit losses and, to date, such losses have been within the Company's
expectations.
In connection with the Company's acquisition of Access One Communication
Corp. ("Access One"), the Company negotiated an extension to August 31, 2000 of
loans under an existing credit facility by MCG Finance Corporation ("MCG
Finance") to Access One and its subsidiaries. The loans under the credit
facility have been secured by a pledge of all of the assets of Access One and
its subsidiaries. In addition, the Company has guaranteed the obligations of
Access One and its subsidiaries under the credit facility. The loans under that
credit facility total $15.0 million in aggregate principal amount. The Company
intends to refinance the loans under the credit facility; however, there can be
no assurances that the Company will be able to obtain new financing on terms
acceptable to it to permit the refinancing of those loans.
The Company does not, and has not historically, required significant
amounts of working capital for its day-to-day operations. The Company believes
that its current cash position and the cash flow expected to be generated from
operations will be sufficient to fund its capital expenditures, working capital
and other cash requirements, including the increased marketing and promotional
expenditures discussed above, for at least the next twelve months. The Company
also believes that, assuming the current market price of its common stock, its
existing cash and cash equivalents and its cash flow from operations will be
sufficient to fund any reimbursement amount in the event that AOL elects to sell
its shares of the Company's common stock at a price below $19 per share and
that, alternatively, it has the ability to obtain the necessary financing to
fund its obligations under the AOL Investment Agreement. Should the Company seek
to raise additional capital, there can be no assurance that, given current
market conditions, the Company would be able to raise such additional capital on
terms acceptable to the Company.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
statements are identified by the use of forward-looking words or phrases,
including, but not limited to, "estimates," "expects," "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been correct.
Forward-looking statements involve risks and uncertainties and the Company's
actual results could differ materially from the Company's expectations. In
addition to those factors discussed in the foregoing Management's Discussion and
Analysis, important factors that could cause such actual results to differ
materially include, among others, adverse developments in the Company's
relationship with AOL or its other marketing partners, increased price
competition for long distance and local services, failure of the marketing of
long distance and local services under its agreement with its various marketing
partners and its direct marketing channels, attrition in the number of end
users,
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TALK.COM INC. AND SUBSIDIARIES
a failure of the Company to successfully integrate the operations of Access One,
a failure of the Company's new local services and bundled local and long
distance services initiative and changes in government policy, regulation and
enforcement. The Company undertakes no obligation to update its forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
subject to a variety of risks, such as the collectibility of its accounts
receivable and the recoverability of the carrying values of its long-term
assets. The Company's long-term obligations consist primarily of its own
convertible notes. The Company does not presently enter into any transactions
involving derivative financial instruments for risk management or other purposes
due to the stability in interest rates in recent times and because management
does not consider the potential impact of changes in interest rates to be
material.
The Company's available cash balances are invested on a short-term basis
(generally overnight) and, accordingly, are not subject to significant risks
associated with changes in interest rates. Substantially all of the Company's
cash flows are derived from its operations within the United States and the
Company is not subject to market risk associated with changes in foreign
exchange rates.
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TALK.COM INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment Number 4 effective as of June 30, 2000, by and
among Talk.com Holding Corp., Talk.com Inc. and America
Online, Inc.++
10.2 2000 Stock Option Plan (Incorporated by reference to
Exhibit 10.31 to the Company's Registration Statement on
Form S-4 (No. 333-40980)
10.3 Amendment Number 5 effective as of August 1, 2000, by
and among Talk.com Holding Corp., Talk.com Inc. and
America Online, Inc.++
11 Computation of Net Income Per Share
27 Financial Data Schedule
++ Confidential treatment has been requested for portions of this
exhibit.
(b) Reports on Form 8-K:
On April 5, 2000 the Company filed a Current Report on Form
8-K reporting that the Company had entered into an agreement and
plan of merger with Access One Communications Corp.
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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.
TALK.COM INC.
Date: August 14, 2000 By: /s/ Gabriel Battista
----------------------------
Gabriel Battista
Chief Executive Officer
Date: August 14, 2000 By: /s/ Edward B. Meyercord, III
-----------------------------
Edward B. Meyercord, III
Chief Financial Officer
Date: August 14, 2000 By: /s/ Janet C. Kirschner
-----------------------
Janet C. Kirschner
Controller
20
