GROUP LONG DISTANCE INC (Form: 10QSB, Filing Date: …

Business Address6600 N. ANDREWS AVENUESUITE 140FORT LAUDERDALE FL 333099547719696

Mailing Address6600 N. ANDREWS AVENUESUITE 140FORT LAUDERDALE FL 33309

SECURITIES AND EXCHANGE COMMISSION

FORM 10QSBOptional form for quarterly and transition reports of small business issuers under section 13 or

15(d)

Filing Date: 2000-04-11 | Period of Report: 2000-01-31SEC Accession No. 0001042910-00-000606

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FILERGROUP LONG DISTANCE INCCIK:1004570| IRS No.: 650213198 | State of Incorp.:FL | Fiscal Year End: 0430Type: 10QSB | Act: 34 | File No.: 001-12827 | Film No.: 598284SIC: 4813 Telephone communications (no radiotelephone)

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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-QSB

(Mark One)

|X| QUARTERLY REPORT UNDER SECTION 13 OR 14(d) OF THE SECURITIESEXCHANGE ACT OF 1934.

For the Quarterly period ended January 31, 2000

OR

|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934.

For the transition period from ____________ to ____________

Commission file number 0-21913

GROUP LONG DISTANCE, INC.(Name of Small Business Issuer in Its Charter)

Florida 65-0213198(State or Other Jurisdiction of (I.R.S. Employer Identification No.)Incorporation or Organization)

6600 North Andrews Avenue, Suite 140,Fort Lauderdale, FL 33309

(Address of Principal Executive Offices)

(954) 771-9696(Issuer's Telephone Number, Including Area Code)

Check whether the Issuer: (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes |X| No |_|

The number of shares of Common Stock, no par value, outstanding as of April 10,2000 was 3,500,402.

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<TABLE><CAPTION>

GROUP LONG DISTANCE, INC. AND SUBSIDIARIES

INDEX

PageNumber------

<S> <C>PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of January 31, 2000 (Unaudited) and April 30,1999........................................................................................ 1

Unaudited Consolidated Statements of Operations for the Nine months ended andThree months ended January 31, 2000 and 1999................................................ 2

Unaudited Consolidated Statements of Cash Flows for the Nine months endedJanuary 31, 2000 and 1999................................................................... 3

Notes to Consolidated Financial Statements.................................................. 4

Item 2. Management's Discussion and Analysis of Financial Condition



and Results of Operations .................................................................. 6

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K............................................................ 11

SIGNATURES.................................................................................. 13

</TABLE>

<TABLE><CAPTION>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


CONSOLIDATED BALANCE SHEETSJanuary 31, 2000 (Unaudited) and April 30, 1999

January 31, April 30,2000 1999---- ----

(Unaudited)<S> <C> <C>

ASSETSCurrent assetsCash................................................................................. $1,182,356 $502,946Accounts receivable less allowance for doubtful accounts of $248,000 and$388,000 at January 31, 2000 and April 30, 1999, respectively........................ 585,059 1,291,461Carrier receivable................................................................... 160,689 --Prepaid expenses and other current assets............................................ 4,750 6,155

---------- ----------

Total current assets................................................................. 1,932,854 1,800,562

Property and equipment, net.......................................................... 7,079 13,168---------- ----------

Total assets......................................................................... $1,939,933 $1,813,730========== ==========

LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities

Volume shortfall charge payable, net................................................. 488,890 407,738Accounts payable..................................................................... 321,882 476,084Deferred revenue..................................................................... -- 3,012,244Income taxes payable................................................................. 1,417,612 1,769,900Accrued expenses and other liabilities............................................... 128,782 511,953

---------- ----------

Total liabilities.................................................................... 2,357,166 6,177,919---------- ----------

Stockholders' deficitPreferred stock, no par value, 2,000,000 shares authorized; no shares issued andoutstanding.......................................................................... -- --Common stock, no par value, 12,000,000 shares authorized; 3,500,402shares issued and outstanding as of January 31, 2000 and April 30, 1999,respectively......................................................................... -- --

Additional paid-in capital........................................................... 5,913,988 5,913,988Accumulated deficit.................................................................. (6,331,221) (10,278,177)

---------- ----------

Total stockholders' deficit.......................................................... (417,233) (4,364,189)---------- ----------

Total liabilities and stockholders' deficit.......................................... $1,939,933 $1,813,730========== ==========

</TABLE>



The accompanying notes are an integral part of these statements.

1

<TABLE><CAPTION>


UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONSFor the Nine Months and Three Months Ended

January 31, 2000 and 1999

Nine Months Three MonthsEnded January 31, Ended January 31,----------------- -----------------

2000 1999 2000 1999---- ---- ---- ----

<S> <C> <C> <C> <C>Sales.................................................. $11,793,895 $21,312,008 $5,367,277 $5,408,839Cost of Sales.......................................... 4,257,870 12,922,067 1,023,465 2,834,374

----------- ----------- ---------- ----------

Gross Profit........................................... 7,536,025 8,389,941 4,343,812 2,574,465Selling, general and administrative expenses........... 1,481,622 2,180,276 340,343 249,914Marketing Expenses..................................... -- 134,692 -- --Depreciation and amortization.......................... 14,168 771,262 1,000 208,884

----------- ----------- ---------- ----------

Income from operations................................. 6,040,235 5,303,711 4,002,469 2,115,667Interest Expense (Income), net......................... (31,721) 82,989 (16,835) 29,943

----------- ----------- ---------- ----------

Income before income taxes............................. 6,071,956 5,220,722 4,019,304 2,085,724Income tax expense..................................... 2,125,000 800,000 1,425,000 500,000

----------- ----------- ---------- ----------

Net income............................................. $3,946,956 $4,420,722 $2,594,304 $1,585,724---------- ---------- ---------- ----------

Net income per common share--basic...................... $1.13 $1.26 $0.74 $0.45========== ========== ========== ==========

Net income per common share--diluted.................... $1.13 $1.26 $0.74 $0.45========== ========== ========== ==========

</TABLE>


2

<TABLE><CAPTION>


UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Nine months ended January 31, 2000 and 1999

Nine Months EndedJanuary 31,

2000 1999---- ----

<S> <C> <C>Cash flows from operating activitiesNet income.......................................................................... $3,946,956 $4,420,722Adjustments to reconcile net income to net cash providedby operating activitiesDepreciation and amortization....................................................... 14,168 771,292Provision for bad debts............................................................. 430,758 240,371



Changes in assets and liabilitiesDecrease in accounts receivable............................................ 275,644 6,031,100Increase in Carrier receivable............................................. (160,689) --Decrease in prepaid expenses and other current assets...................... 1,405 85,732Increase in volume shortfall charge payable, net........................... 81,152 --Decrease in accounts payable............................................... (154,202) (13,486,614)Decrease in Deferred revenue............................................... (3,012,244) --(Decrease) increase in accrued expenses and other liabilities.............. (383,171) 2,355,047(Decrease) increase in income taxes payable................................ (352,288) 933,854

---------- ----------

Net cash provided by operating activities............................... 687,489 1,351,504---------- ----------

Cash flows from investing activities

Acquisition of property and equipment....................................... (8,079) ------------ ----------

Net cash used in financing activities.................................... (8079) ------------ ----------

Cash flows from financing activities

Principal repayments of long-term debt...................................... -- (1,007,704)---------- ----------

Net cash used in financing activities................................... -- (1,007,704)---------- ----------

Net increase in cash................................................................ 679,410 343,800Cash at beginning of year........................................................... 502,946 303,962

---------- ----------

Cash at end of period............................................................... $1,182,356 $647,762========== ========

</TABLE>


3


UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have beenprepared in accordance with the generally accepted accounting principles forinterim financial information and with the instructions to Form 10-QSB.Accordingly, they do not include all the information and footnotes required bygenerally accepted accounting principles for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for fair presentation have been included.Operating results for the nine months ended January 31, 2000 are not necessarilyindicative of the results that may be expected for the year ending April 30,2000.

The balance sheet at April 30, 1999 has been derived from the auditedfinancial statements at that date, but does not include all the information andfootnotes required by generally accepted accounting principles for completefinancial statements. For further information, refer to the audited financialstatements and footnotes thereto included in the Form 10-KSB filed by theCompany for the year ended April 30, 1999.

NOTE B--FORMATION AND OPERATIONS OF THE COMPANY



Group Long Distance, Inc. (the "Company") is a non-facilities-basedreseller of long distance telecommunications services to small and medium-sizedcommercial customers and residential subscribers. The Company utilizes specialnetwork service contracts through major national long-distancetelecommunications carriers to provide its customers with products and serviceswhich include basic "1 plus" and "800" long distance services. The Company wasincorporated under the laws of Florida in September 1995 by ITC IntegratedSystem, Inc. ("ITC"), an unaffiliated third party, under the name Second ITCCorporation ("Second ITC") as the successor to the business of Group LongDistance, Inc. ("GLD"), which was incorporated under the laws of Florida in July1990. In November 1995, GLD was merged into Second ITC and Second ITCsimultaneously changed its name to Group Long Distance, Inc. Unless otherwiseindicated, all references to the Company include GLD, the Company's predecessor,and the Company's wholly owned subsidiaries. These subsidiaries include EasternTelecommunications Incorporated ("ETI"), Adventures-in-Telecom ("AIT") and GulfCommunications Services, Inc ("GULF").

As a non-facilities based reseller of long distance telecommunicationsservices, the Company utilizes service contracts to provide its customers withswitched, dedicated and private line services to long distancetelecommunications networks. The Company does not own or operate any primarytransmission facilities. All of the Company's products and services arecurrently provided for by long distance carriers and regional and localtelephone companies. The Company has entered into agreements with TALK.com("TALK"), formerly Tel-Save, Inc., a nationwide provider of telecommunicationsservices to purchase long distance telephone service at discounted bulk rates.The Company then resells these discounted services to customers, at rates lowerthan rates the Company's customers are able to obtain for themselves due tosmall call volume. The Company then provisions the customer onto the carriers'networks, which provide the actual transmission service. The Company does notown or lease any telephone equipment at the customer's premises, nor does itprovide telephone cabling or installation services. The customer still maintainsits own existing telephone numbers, and all changes in service are done by thelocal or interexchange carriers. The customers incur no expense in making thedecision to switch to the service of the Company.

4


UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C--TALK AGREEMENT

On December 8th, 1999, based on a settlement agreement ("TALKAgreement") with TALK, the Company agreed to pay $1.1 million to resolve theshortfall charge. The $1.1 million was payable, 50% immediately and the balanceover an eighteen-month period. As part of the TALK Agreement, TALK agreed torelease approximately $2.9 million dollars of cash (net of the $550, 000) to theCompany that was held under a lockbox arrangement, and the release of allreceivables that were secured pursuant to a Partition Agreement, and that allfuture minimum monthly volume commitments were waived by TALK. In addition, theTALK Agreement provides for an extension of the current carrier agreement untilthe later of August 31, 2002, or the date that all obligations to TALK have beensatisfied in full, and for the exchange of mutual releases. The remainingbalance of the volume shortfall charge as at January 31, 2000 was $488,890.

As a result of the TALK Agreement, deferred revenue was recognized asincome in the current quarter results for the three months ended January 31,2000. The deferred revenue related to funds, held by TALK under a lockboxarrangement for which repayment at April 30, 1999 was uncertain. The lockboxarrangement provided that all funds in the lockbox remained the property of TALKuntil all amounts owed to TALK were fulfilled. The reversal of deferred revenueresulted in higher sales for the nine and three months ended January 31, 2000without a corresponding charge to cost of sales and an incremental increase innet income before taxation of $3,012,244.

NOTE D--SUBSEQUENT EVENTS

On March 28, 2000, the Company and Coyote Network Systems, Inc.("COYOTE") executed a Letter of Intent, which provides, among other things, forthe merger between a wholly owned subsidiary of COYOTE and the Company. Pursuantto the merger, the shareholders of the Company would receive approximately $5.6million in shares of COYOTE common stock.

The transaction is subject to, among other things, approval by both the



Company and COYOTE's board of directors, completion of due diligence, executionof definitive documents and approval by the shareholders of the Company. It isanticipated that the closing would occur in the Company's second fiscal quarterending October 31, 2000.

On March 31, 2000 the Company filed a FORM 8-K with the SecuritiesExchange Commission relating to the COYOTE Letter of Intent to acquire theCompany.

5

Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations

The following discussion and analysis of significant factors affectingthe Company's operating results and liquidity and capital resources should beread in conjunction with the accompanying financial statements and relatednotes.

This Report on Form 10-QSB contains forward-looking statements.Additional written and oral forward-looking statements may be made by theCompany from time to time in Securities and Exchange Commission ("SEC") filingsand otherwise. The Company cautions readers that results predicted byforward-looking statements, including, without limitation, those relating to theCompany's future business prospects, revenues, working capital, liquidity,capital needs, interest costs, and income are subject to certain risks anduncertainties that could cause actual results to differ materially from thoseindicated in the forward-looking statements. Some of these risks and factors areidentified herein and from time to time in the Company's filings with the SEC.Readers are cautioned that forward-looking statements are not guarantees offuture performance and that the actual results may differ materially from thosesuggested or projected in forward-looking statements. Accordingly, there can beno assurance that the forward looking statements will occur, or that the resultswill not vary significantly from those described in the forward-lookingstatements.

Overview

The Company is a long distance telecommunications provider. The Companyutilizes special network service contracts through major national long distancetelecommunications carriers to provide its customers with products and serviceswhich include basic "1 plus" and "800" long distance services. As anonfacilities based reseller of long distance telecommunication services, theCompany utilizes service contracts to provide its customers with switched,dedicated and private line services to various long distance telecommunicationsnetworks such as TALK. The Company is dependent on TALK and numerous regionaland local telephone companies to provide its services and products. TheCompany's revenues are currently solely derived from calls routed through TALK.

The Company's prior agreements with TALK provided that the Companymaintain certain monthly revenues (as defined in the agreements) to the carrierfor services provided under the agreements during stated periods. Under theseprior agreements, the Company had an exposure for a monthly commitment for suchrevenues of $3,000,000 (representing, in aggregate, $36,000,000 for the fiscalyear ended April 30, 1999 and $18,600,000 for the fiscal year ended April 30,1998). Based on the TALK Agreement on December 8, 1999, the Company agreed topay $1.1 million to resolve the shortfall charge. As part of the TALK Agreement,TALK agreed to release approximately $2.9 million dollars of cash to the Companythat was held under a lockbox arrangement, to release all receivables that weresecured pursuant to a Partition Agreement, and to waive all future minimummonthly volume commitments. In addition, the TALK Agreement provides for anextension of the current carrier agreement until the later of August 31, 2002,or the date that all obligations to TALK have been satisfied in full, and forthe exchange of mutual releases. As a result of the TALK Agreement, deferredrevenue was recognized as income in the current quarter results for the threemonths ended January 31, 2000. The deferred revenue related to funds, held byTALK under a lockbox arrangement for which repayment at April 30, 1999 wasuncertain. The lockbox arrangement provided that all funds in the lockboxremained the property of TALK until all amounts owed to TALK were fulfilled. Thereversal of deferred revenue resulted in higher sales for the nine and threemonths ended January 31, 2000 without a corresponding charge to cost of salesand an incremental increase in net income before taxation of $3,012,244.

6



In October 1997, the Company outsourced its back office operations,which included collections, customer service and provisioning, reducing itsworkforce from 26 to 7 employees. The effect of this action was to significantlyreduce overhead costs and with the direct intention of improving customerservice. As of April 30, 1999 the Company employed four full-time employees andat April 10, 2000, the Company employed three full-time employees.

The Company is no longer conducting and has no plans to conduct anymarketing campaigns to attract new customers, since the Company has determinedthat it is currently unable to both procure new customers, and achieve positiveearnings after amortization of acquisition costs for these new customers. Thisis due to the competitive advantage held by facilities based carriers andInternet marketing enterprises. Many of these services and products are marketedby companies which are well established, have reputations for success in thedevelopment and sale of services and products and have significantly greaterfinancial, marketing, distribution, personnel and other resources than theCompany. These resources permit such companies to implement extensiveadvertising and promotional campaigns, both generally and in response to effortsby additional competitors to enter into new markets and introduce new servicesand products. Certain of these competitors, including AT&T, MCI/WorldCom andSprint, dominate the industry and have the financial resources to enable them towithstand substantial price competition which has continued to increase.

The Company commenced "LEC billing" arrangements with the Regional BellOperating Companies and local exchange carriers ("LEC") during the secondquarter of fiscal year 1998. These LEC billing arrangements have improvedbilling efficiencies, increased collections and assisted in lowering customerattrition, which without this arrangement could have been significantly higher.

The Company's operating results are significantly affected by customerattrition rates, particularly since the Company is no longer marketing itsservices. The Company believes that a high level of customer attrition in theindustry is primarily a result of national advertising campaigns, telemarketingprograms and customer incentives provided by major competitors, as well as thetermination of service for non-payment. This is due to the competitive advantageheld by facilities based carriers and Internet marketing enterprises.

The Company has explored strategic opportunities, partnerships andbusiness combinations. The Company has signed a Letter of Intent with COYOTE tomerge with a subsidiary of COYOTE (See Unaudited Notes to Consolidated FinancialStatements "Note D- Subsequent Events").

7

Results of Operations

The following table sets forth for the periods indicated the percentagesof total sales represented by certain items reflected in the Company'sconsolidated statements of operations:<TABLE><CAPTION>

Nine Months Ended Three Months EndedJanuary 31, January 31,

2000 1999 2000 1999---- ---- ---- ----

<S> <C> <C> <C> <C>Sales.............................................. 100% 100% 100% 100%Cost of Sales...................................... 36 61 19 52Gross profit....................................... 64 39 81 48Selling, general and administrative expense. 13 10 6 5Marketing expenses................................. -- * -- --Depreciation and amortization expense.............. * 4 * 4Interest expense/income, net....................... * * * 1Income before income taxes......................... 51 25 75 38Income tax expense................................. 18 4 27 9Net income......................................... 33 21 48 29</TABLE>-------------*Less than 1 percent

Comparison of Nine months ended January 31, 2000 to Nine months ended January31, 1999 and of Three months ended January 31, 2000 to Three months endedJanuary 31, 1999.

Sales. The Company's sales were $11,793,895 for the nine months endedJanuary 31, 2000, compared to $21,312,008 for the nine months ended January



31,1999, a decrease of $9,518,113 or 45%. The Company's sales were $5,367,277for the three months ended January 31, 2000, compared to $5,408,839 for thethree months ended January 31, 2000, a decrease of $41,562 or 1%. The decreasesin sales were a result of the termination of the previous telemarketing campaignand normal attrition of the customer base. Sales for the nine months and threemonths ended January 31, 2000 includes deferred revenue being recognized asincome in the current quarter of $3,012,244 as a result of the TALK Agreement.Management believes attrition of customer base is being experienced by othercompanies in the Industry that are positioned similarly to the Company. TheCompany has determined that it is currently difficult to both market to procurenew customers and achieve positive earnings after amortization of acquisitioncosts for these new customers. This is due to the competitive advantage held byfacilities based carriers and Internet marketing enterprises. Because theCompany is not currently marketing its products and services, the Company'srevenues are likely to continue to decline, although at a reduced rate. TheCompany anticipates this trend to continue through the rest of the fiscal yearending April 30, 2000, and thereafter.

Cost of Sales. Cost of sales were $4,257,870 for the nine months endedJanuary 31, 2000, compared to $12,922,067 for the nine months ended January31,1999, a decrease of $8,664,197 or 67%. Cost of sales were $1,023,465 for thethree months ended January 31, 2000, compared to $2,834,374 for the three monthsended January 31, 1999, a decrease of $1,810,909 or 64%. As a percentage ofsales, cost of sales was 36% and 61% for the nine months ended January 31, 2000and nine months ended January 31, 1999, respectively. As a percentage of sales,cost of sales was 19% and 52% for the three months ended January 31, 2000 andthree months ended January 31, 1999, respectively. The decrease in cost of salesbetween comparative periods was due to the decrease in revenues as a result ofcustomer attrition. The decrease in cost of sales as a percentage of sales inthe current fiscal year is primarily as a result of the effect of therecognition of the deferred revenue in the current quarter, the Company beingable to better negotiate its buy rate from its carrier as a result of the TALKAgreement and a change in the mix of customer base from the nine months endedJanuary 31, 1999.

8

Gross Profit. Gross profit was $7,536,025 for the nine months endedJanuary 31, 2000 compared to $8,389,941 for the nine months ended January31,1999, a decrease of $853,916 or 10%. Gross profit was $4,343,812 for thethree months ended January 31, 2000 compared to $2,574,465 for the three monthsended January 31, 1999, an increase of $1,769,347 or 68%. As a percentage ofsales, gross profit was 64% and 39% for the nine months ended January 31, 2000and January 31, 1999, respectively. As a percentage of sales, gross profit was81% and 48% for the three months ended January 31, 2000 and three months endedJanuary 31, 1999, respectively. The increase in gross profit percentages in thenine months ended January 31, 2000 was primarily as a result of the effect ofthe recognition of the deferred revenue in the current quarter, a lower buy ratefrom the carrier and improved margins on, and a change in the mix of customerbase from the nine months ended January 31, 1999.

Selling, General and Administrative Expense. Selling, general andadministrative expenses ("SG&A") were $1,481,622 for the nine months endedJanuary 31, 2000 compared to $2,180,276 for the nine months ended January 31,1999, a decrease of $698,654 or 32%. Selling, general and administrativeexpenses ("SG&A") were $340,343 for the three months ended January 31, 2000compared to $249,914 for the three months ended January 31, 1999, an increase of$90,429 or 36%. SG&A expenses for the nine months ended January 31, 2000 includeaccruals for two Severance Packages totaling $310,000 for Messrs. Dunne, formerPresident and Chief Executive Officer of the Company, and Russo, former ChiefFinancial Officer of the Company. As a percentage of sales, SG&A for the ninemonths ended January 31, 2000 and 1999 was approximately 13% and 10%,respectively. As a percentage of sales, SG&A for the three months ended January31, 2000 and 1999 was approximately 6% and 5%, respectively. This increase inSG&A for the three months ended January 31, 2000 as compared to the three monthsended January 31, 1999, was due to a once-time reversal of certain accruals nolonger deemed necessary for the three months ended January 31, 1999. This hadthe effect of significantly reducing operating expenses for the three monthsended January 31, 1999.

Marketing Expenses. There were no marketing expenses for the ninemonths and three months ended January 31, 2000. Marketing expenses were $134,692for the nine months ended January 31, 1999. During the nine months ended January31, 1999, the Company entered into a new marketing campaign to sign up customersusing independent agents, aligned with affinity based marketing programs. Thiscampaign was discontinued during the second quarter of fiscal year 1999. TheCompany is no longer conducting, nor does it have any plans to conduct anymarketing campaign to attract new customers, since the Company has determined



that it is currently difficult to both procure new customers and achievepositive earnings after amortization of acquisition costs for these newcustomers. This is due to the competitive advantage held by facilities basedcarriers and Internet marketing enterprises.

Depreciation and Amortization Expense. Depreciation and amortizationexpense was $14,168 for the nine months ended January 31, 2000 compared to$771,262 for the nine months ended January 31,1999, a decrease of $757,094 or98%. Depreciation and amortization expense was $1,000 for the three months endedJanuary 31, 2000 compared to $208,884 for the three months ended January 31,1999, a decrease of $207,884 or 99%. As a percentage of sales, depreciation andamortization expense was less than 1% for the nine months ended January 31, 2000and approximately 4% for the nine months ended January 31,1999. As a percentageof sales, depreciation and amortization expense was less than 1% for the threemonths ended January 31, 2000 and approximately 4% for the three months endedJanuary 31, 1999. For the nine months ended January 31, 2000 no amortization wasprovided, since the customer acquisition costs were fully expensed as at April30, 1999. The depreciation and amortization for the nine months ended January31,1999 was related to the acquisition of the AIT customer base.

Interest Expense (Income), Net. Interest income (net) for the ninemonths ended January 31, 2000 was $31,721 compared to an interest expense of

9

$82,989 for the nine months ended January 31,1999. Interest income (net) for thethree months ended January 31, 2000 was $16,835 compared to an interest expenseof $29,943 for the three months ended January 31, 1999. The interest income forthe nine months and three months ended January 31, 2000 was interest earned as aresult of a positive cash balance. The interest expense for the nine months andthree months ended January 31,1999 was primarily due to interest paid on a Notepayable to WorldCom under a settlement agreement. This Note was subsequentlysettled during the fiscal 1999 year.

Income Taxes. Income tax expense of $2,125,000 was provided for thenine months ended January 31, 2000 compared to $800,000 for the nine monthsended January 31,1999. Income tax expense of $1,425,000 was provided for thethree months ended January 31, 2000 compared to $500,000 for the three monthsended January 31, 1999. For the nine months ended January 31, 2000, the Companyapplied the applicable statutory federal income tax rate of 34% to pretax incomewithout taking into account any tax allowances or benefits.

Net Income. The Company had a net income of $3,946,956 or net income of$1.13 per share, for the nine months ended January 31, 2000, as compared to netincome of $4,420,722 or $1.26 per share, for the nine months ended January31,1999. The Company had a net income of $2,594,304, or net income of $0.74 pershare, for the three months ended January 31, 2000, as compared to net income of$1,585,724, or $0.45 per share, for the three months ended January 31, 1999. Thenet income for the nine months and three months ended January 31, 2000 wasprimarily due to the reversal of the deferred revenue of $3,012,244 as a resultof the TALK agreement, and improved operating margins despite a decrease insales. The reversal of deferred revenue resulted in higher sales for the nineand three months ended January 31, 2000 without a corresponding charge to costof sales and an incremental increase in net income before taxation of$3,012,244.

Liquidity and Capital Resources

The Company's primary cash requirements had historically been to fundthe acquisition of customer bases and to fund increased levels of accountsreceivable (which have required substantial working capital) and to fund netlosses. The Company has historically satisfied its working capital requirementsprincipally through cash flow from operations (including advances from TALK) andborrowings from institutions and carriers. The reduced levels of sales andreceivables together with the positive cash position has significantly reducedthe Company's reliance on borrowings.

At January 31, 2000, the Company had a working capital deficit of$424,312, as compared to working capital deficit of $4,377,357 at April 30,1999. The working capital deficit during the nine months ended January 31, 2000was primarily due to income taxes payable of approximately $1.4 million andafter taking into account the release of cash held in the lockbox arrangement asa result of the TALK agreement and the payment of all Federal and State taxesfor the fiscal year ended April 30, 1999. For the fiscal year ended April 30,1999 the working capital deficit was largely due to the deferred revenue ofapproximately $3 million and income taxes payable of approximately $2 million.The deferred revenue related to funds, held by TALK under a lockbox arrangement



for which repayment at that date was uncertain. The lockbox arrangement providedthat all funds in the lockbox remained the property of TALK until all amountsowed to TALK were fulfilled. The uncertainty related to a volume shortfallcharge based on monthly minimum volume commitments as at April 30, 1999, whichwas resolved by the TALK Agreement signed on December 8, 1999. As a result ofthe TALK Agreement the deferred revenue was recognized as income in the currentquarter results for the three months ended January 31, 2000.

The volume shortfall charge was included in volume shortfall chargepayable, net, for which the right of offset existed. The volume shortfall chargerelated to the Company's failure to satisfy volume purchase commitments from itscarrier, TALK. The volume shortfall charge at January 31, 2000 was $488,890 andat April 30, 1999 was $1.1 million. The Company's agreements with TALK providedthat the Company maintain certain monthly revenues (as defined in theagreements) to the carrier for services provided under the agreements duringstated periods. Under these prior agreements, the Company had an exposure for amonthly commitment for such revenues of $3,000,000 (representing, in aggregate,$36,000,000 for the fiscal year ended April 30, 1999 and $18,600,000 for the

10

fiscal year ended April 30, 1998). Based on a settlement agreement ("TALKAgreement") with TALK on December 8, 1999, the Company agreed to pay $1.1million to resolve the shortfall charge. The $1.1 million was payable, 50%immediately and the balance over an eighteen-month period. As part of the TALKAgreement, TALK agreed to release approximately $2.9 million dollars of cash tothe Company (net of the $550,000) that was held under a lockbox arrangement, torelease all receivables that were secured pursuant to a Partition Agreement, andto waive all future minimum monthly volume commitments. In addition, the TALKAgreement provides for an extension of the current carrier agreement until thelater of August 31, 2002, or the date that all obligations to TALK have beensatisfied in full, and for the exchange of mutual releases.

Net cash provided by operating activities was $687,489 for the ninemonths ended January 31, 2000 as compared to net cash provided by operatingactivities of $1,351,504 for the nine months ended January 31, 1999. The netcash provided by operating activities for the nine months ended January 31, 2000is primarily attributable to net income from operating activities, a reversal ofdeferred revenue and offset by a decrease in volume shortfall charge payable andincome taxes payable.

For the nine months ended January 31, 1999, the cash provided byoperating activities is attributable to net income from operating activities, adecrease in accounts receivable as a result of collections and offset by adecrease in accounts payable as a result of repayment of debt.

Cash used in investing activities was $8,079 for the nine months endedJanuary 31, 2000. No Cash was used in investing activities for the nine monthsended January 31, 1999.

No cash was used in financing activities for the nine months endedJanuary 31, 2000 as compared to cash used in financing activities of $1,007,704for the nine months ended January 31, 1999. The cash used in financingactivities for the nine months ended January 31, 1999 is primarily attributableto the payment made under the settlement of the AT&T debt outstanding in July1998 as well as all payments made to WorldCom under a settlement agreement. AtJanuary 31, 2000, the Company had cash of $1,182,356.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Amended and Restated Articles of Incorporation of Registrant.(Filed as an Exhibit to Amendment No. 1 to the Company'sRegistration Statement on Form SB-2 (No. 333-17681) filed March 3,1996 and incorporated herein by reference.)

3.2 Amended and Restated By-laws of Registrant. (Filed as an Exhibit toAmendment No. 1 to the Company's Registration Statement on FormSB-2 (No. 333-17681) filed March 3, 1996 and incorporated herein byreference.)

4.1 Form of Representative's Warrant Agreement including Form ofRepresentative's Warrant Certificates. (Filed as an Exhibit toAmendment No. 1 to the Company's Registration Statement on Form



SB-2 (No. 333-17681) filed March 3, 1996 and incorporated herein byreference.)

4.2 Form of Redeemable Warrant Agreement including Form of WarrantCertificate. (Filed as an Exhibit to Amendment No. 1 to theCompany's Registration Statement on Form SB-2 (No. 333-17681) filedMarch 3, 1996 and incorporated herein by reference.)

11

4.3 Form of Common Stock Certificate. (Filed as an Exhibit to theCompany's Annual Report on Form 10-KSB for the year ended April 30,1998 and incorporated herein by reference.)

10.1 Separation Agreement between Peter J. Russo with Registrant. (Filedas an Exhibit to the Company's Annual Report on Form 10-KSB for theyear ended April 30, 1999 and incorporated herein by reference.)

10.2 Consulting Agreement between Torbay Management Services, Inc., withRegistrant. (Filed as an Exhibit to the Company's Annual Report onForm 10-KSB for the year ended April 30, 1999 and incorporatedherein by reference.)

10.3 Separation Agreement between Gerald M. Dunne, Jr. with Registrant.(Filed as an Exhibit to the Company's Annual Report on Form 10-KSBfor the year ended April 30, 1999 and incorporated herein byreference.)

10.4 Employment Agreement of Glenn S. Koach with Registrant. (Filed asan Exhibit to the Company's Annual Report on Form 10-KSB for theyear ended April 30, 1999 and incorporated herein by reference.)

10.5 Sublease Agreement between ADMINASSISTANCE with the Registrantdated November 4, 1999. (Filed as an Exhibit to the Company'sAnnual Report on Form 10-KSB for the year ended April 30, 1999 andincorporated herein by reference.)

10.6 Employment Agreement of Sam D. Hitner with Registrant. (Filed as anExhibit to the Company's Quarterly Report on Form 10-QSB for thenine months ended January 31, 2000.)

(b) Exhibit 27--Financial Data Schedule

(c) Reports on Form 8-K

None

12

SIGNATURES

In accordance with the requirements of the Exchange Act, the registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

GROUP LONG DISTANCE, INC.<TABLE><CAPTION>

Signature Title Date--------- ----- ----

<S> <C> <C>By: /s/ GLENN S. KOACH President and Chief Executive Officer April 10, 2000

--------------------- (Principal Executive Officer)Glenn S. Koach

By: /s/ SAM D. HITNER Chief Financial Officer April 10, 2000--------------------- (Principal Financial and Accounting Officer)Sam D. Hitner

</TABLE>

13



EMPLOYMENT AGREEMENT--------------------

This AGREEMENT between GROUP LONG DISTANCE, INC. (hereinafter the"Company") and SAM D. HITNER, an individual (hereinafter the "Employee") isentered into as of and will be effective as of February 1, 2000.

WHEREAS, the Employee is currently employed as Chief Financial Officerof the Company and serves as Secretary of the Company; and

WHEREAS, the Company desires that the Employee continue to be employedas Chief Financial Officer of the Company and to serve as Secretary of theCompany; and

WHEREAS, the Employee wishes to be so employed;

NOW, THEREFORE, in consideration of the premises and of the mutualcovenants herein contained, the parties agree as follows:

1. EMPLOYMENT.

The Company agrees to employ the Employee in the position of ChiefFinancial Officer, and the Employee agrees to continue employment with theCompany on the terms and conditions hereinafter set forth. The Employee shallalso serve as Secretary of the Company, as provided for in the By-Laws of theCompany, during the term of this Agreement.

2. DUTIES.

(a) The Employee shall perform satisfactorily all duties of hisposition, as provided for in the By-Laws of the Company and as determined fromtime-to-time by the President of the Company.

(b) The Employee shall devote such time to the development andoperations of the Company's business as is necessary or advisable. (c) TheEmployee shall be accountable to the President and Chief Executive Officer.

(c) The Employee shall be accountable to the President and ChiefExecutive Officer.

(d) As Chief Financial Officer, all financial matters of the Companyshall be reported directly to Employee.

(e) The Employee shall abide by the policies, standards and rules



established from time-to-time by the Board of Directors for the conduct of thebusiness of the Company. The Employee will not intentionally or negligently actin any manner to cause financial or other damage to the Company or the Company'sreputation in the community in which its business is located. The Board ofDirectors reserves the right to change, interpret, withdraw or add to any of thepolicies, standards and rules of the Company at any time as it deemsappropriate. The President and Chief Executive Officer of the Company and theBoard of Directors shall not entertain discussion regarding amendments to thisAgreement or the termination of Employee without prior notice to Employee.

(f) The Employee will not interfere with the President or members ofthe Board of Directors making reasonable inquiry into the financial affairs ofthe Company and will not stifle the free flow of financial information to them.

3. TERM.

(a) The term of this Agreement shall commence as of the date hereof,and shall be in force for a twelve (12) month period. The Agreement shall beautomatically renewed for twelve (12) month periods in full force and effectfrom the expiration of any period hereunder, unless one of the parties heretoshall give written notice to the other party not less than sixty (60) days priorto the expiration of such period, of the party's intention to terminate theAgreement at the expiration of such period.

(b) If one of the parties hereto gives proper notice to the otherparty that this Agreement will not be automatically renewed pursuant to theprovisions of Section 3(a) hereof, the

2

Employee: (i) shall continue his employment with the Company until theexpiration of the current term of this Agreement; and (ii) shall continue toreceive all compensation and benefits to which the Employee is entitled underthis Agreement until the expiration of such period.

4. COMPENSATION AND BENEFITS:

(a) For all services rendered by the Employee for each contractyear, the Employee shall receive a base salary of EIGHTY FIVE THOUSAND DOLLARS($85,000.00) per year.

(b) The Employee shall be entitled to stock options in accordancewith the Company's 1996 Stock Option Plan on the terms and conditions of theOption Agreement attached hereto as Exhibit "A".

(c) The Employee shall be entitled to fifteen (15) days of vacation



which may be used as long as such vacation time does not interfere with normalbusiness operations and the Employee's duties as Chief Financial Officer.

(d) The Employee shall be entitled to such sick days and personaldays as may be established by the Company for officers of the Company.

(e) At the sole discretion of the President of Company, the Employeemay be granted a bonus from time to time, the amount of which shall bedetermined by the President. The President will consider certain factors inmaking such determination, including but not limited to, the Company'sperformance, profitability, positive cash flow, and any other significant eventor matter.

(f) The Employee shall be entitled to full health benefits duringthe term of this Agreement.

3

(g) The Employee shall be entitled to participate in the Simple IRAPlan maintained by Company from time-to-time, and Company agrees to contributethree (3%) percent of Employee's gross annual salary to such Simple IRA Planduring each year this Agreement remains in effect.

5. TERMINATION OF EMPLOYMENT.

(a) During the term of this Agreement, the Company may terminate theEmployee for Cause (as defined herein) and without Cause. The Company must givewritten notice of any such termination.

(b) If the Company terminates the Employee during the term of thisAgreement for Cause, the Employee shall not be entitled to receive any furtherinstallments of Employee's base salary or any other compensation (includingseverance payments) from the Company pursuant to this Agreement or otherwise.

(c) If the Company terminates the Employee during the term of thisAgreement without Cause, the Employee shall be entitled to receive a severancepayment equal to six (6) months of the Employee's base salary and all benefits.The Employee shall cease to be entitled to such severance payment in the eventthat the Employee violates the terms of Section 7 of this Agreement. TheEmployee shall be entitled to such severance payment as of the date writtennotice of termination is provided to the Employee. Such compensation shall bepaid in equal monthly installments over a period of three (3) months.

(d) "Cause" for purposes of this Section 5 shall mean theEmployee's: (a) engagement in gross misconduct materially injurious to theCompany; or (b) knowing and willful neglect or refusal to attend to the materialduties assigned to him by the President and Chief Executive Officer or the Board



of Directors of the Company, which is not cured within thirty (30)

4

days after written notice; or (c) intentional misappropriation of property ofthe Company to the Employee's own use; or (d) commission of an act of fraud orembezzlement; or (e) conviction for a crime (excluding minor traffic offenses).

6. REIMBURSEMENT OF EXPENSES.

The Company shall reimburse the Employee for the Employee's reasonableexpenses incurred by the Employee in connection with the Employee's duties underthis Agreement. The Employee shall comply with all reasonable recordkeepingrequirements of the Company with respect to the reimbursement of expenses.

7. AGREEMENT NOT TO COMPETE.

(a) During the term of this Agreement and for a period of six (6)months after the termination of this Agreement, the Employee agrees not toengage in the telecommunication business, either directly or indirectly, otherthan on behalf of the Company and its affiliated companies without the writtenapproval of the Board of Directors of the Company. The term telecommunicationbusiness shall be deemed to include long distance business (national andinternational), mobile communications, beepers, local access communications anddebit card or other prepaid calling services and other similar business.Further, during the period of employment, the Employee agrees not to undertakeany outside business investment opportunity that may reasonably be deemed toconflict with the interests of the Company or an usurpation of corporateopportunity for the Company, without the written approval of the Board ofDirectors of the Company.

(b) If any portion of the restrictions set forth above should, forany reason whatsoever, be declared invalid by a court of competent jurisdiction,the validity or enforceability of the remainder of such restrictions shall notthereby be adversely affected.

5

(c) The Employee declares that the foregoing scope, territorial andtime limitations are reasonable and properly required for the adequateprotection of the business of the Company. In the event any such scope,territorial or time limitation is deemed to be unreasonable by a court ofjurisdiction, the Employee agrees to the reduction of said scope, territorial ortime limitation to such scope, area or period which said court shall have deemed



reasonable.

(d) The existence of any claim or cause of action by the Employeeagainst the Company other than under this Agreement shall not constitute adefense to the enforcement by the Company of the foregoing restrictivecovenants, but such claim or cause of action shall be litigated separately.

8. ENTIRE AGREEMENT.

This instrument contains the entire agreement of the parties. It maynot be changed orally. It may only be changed by an agreement in writing signedby the party against whom enforcement of any waiver, change, modification,extension or discharge is sought.

This Agreement supersedes in its entirety all prior employmentagreements between the Company and the Employee.

9. SITUS.

This Agreement shall be governed by the laws of the State of Florida.

10. SUCCESSORS AND ASSIGNS.

This Agreement shall be binding on the Company's successors andassigns.

11. SEVERABILITY.

The invalidity or unenforceability of any provision of this Agreementshall in no way affect the validity or enforceability of any other provision.

6

12. WAIVER OF BREACH.

The waiver by the Employee or the Company of any breach of anyprovision of this Agreement by the other shall not operate or be construed as awaiver of any subsequent breach by the other.

13. CONFIDENTIALITY.

The Employee shall keep confidential all proprietary and otherinformation concerning the Company and its business, including but not limitedto information concerning the Company's customers, vendors and others with whomit transacts business, its methods of operation and other trade secrets, itfuture plans and strategies, and any financial information concerning theCompany (collectively, "Confidential Information"). The Employee agrees that allConfidential Information is the exclusive property of the Company and that



Employee will not remove the originals or make copies of any ConfidentialInformation without the Company's prior written consent. The Employee shall notuse Confidential Information for any purposes other than to carry out hisobligations under this Agreement and will not divulge Confidential Informationto any other person or entity during or after the term of this Agreement withoutthe Company's prior written consent, unless required by law or judicial or otherprocess. The provisions of this Section 13 shall continue to apply to theparties after this Agreement is terminated.

14. ARBITRATION.

In the event the Employee has any dispute, controversy or claim withthe Company, including but not limited to any claim for wrongful termination,sexual harassment or discrimination under the laws of the State of Florida orthe United States (excepting only worker's compensation, unemployment ortemporary disability claims submitted in accordance with State law), any suchdispute, controversy or claim shall be submitted to arbitration in accordancewith the American

7

Arbitration Association's National Rules for the Resolution of EmploymentDisputes. The American Arbitration Association shall appoint a single arbitratorto hear and decide the dispute and any locale for any hearing will be at theAmerican Arbitration Association's office closest to the Company's offices inFort Lauderdale, Florida, or at such other location as the parties may mutuallyagree upon. The arbitrator appointed by the American Arbitration Associationshall issue an opinion and award which shall be final and binding upon both theEmployee and the Company. All such disputes, controversies or claims shall befiled with the American Arbitration Association within six (6) months after thealleged incident, event or circumstance which gave rise to the dispute,controversy or claim. The alternative dispute resolution mechanism provided forin this Section 14 shall not preclude the Company from seeking or obtainingjudicial relief in the event the Employee violates any provision of thisAgreement, particularly any breach of Sections 7 and 13.

IN WITNESS WHEREOF, the parties have executed the Agreement effectiveas of the date first above written.

GROUP LONG DISTANCE, INC.

/s/ SAM D. HITNER By: /s/Glenn Koach---------------------------- ----------------------------

SAM D. HITNER Glenn KoachPresident



8

EXHIBIT "A"-----------

INCENTIVE STOCK OPTIONS AGREEMENT---------------------------------

THIS INCENTIVE STOCK OPTIONS AGREEMENT (hereinafter referred to as"AGREEMENT") is made effective this 1st day of February, 2000, by and betweenGROUP LONG DISTANCE, INC., a Florida corporation (hereinafter referred to as"GLD") and SAM D. HITNER (hereinafter referred to as "HITNER").

RECITALS:

WHEREAS, GLD has adopted the "Group Long Distance, Inc. 1996 StockOption Plan" (hereinafter referred to as "PLAN"), which provides for thegranting of incentive stock options to employees of GLD; and

WHEREAS, HITNER serves as Chief Financial Officer of GLD.

NOW, THEREFORE, IN CONSIDERATION of the premises and the mutualpromises and covenants contained herein, and for other good and valuableconsideration, the receipt, adequacy and sufficiency of which are herebyacknowledged, the parties hereto, intending to be legally bound, agree asfollows:

1. Grant of Options. Effective as of the date hereof (hereinafterreferred to as "GRANT DATE"), GLD hereby grants to HITNER the options(hereinafter referred to as "OPTIONS") to buy from GLD up to a total of TwentyFive Thousand shares (hereinafter referred to as "OPTION SHARES") of the commonstock of GLD, in the amounts and at the price (hereinafter referred to as "PERSHARE EXERCISE PRICE") set forth below:

10,000 shares at $ .20;8,750 shares at $ .40; and6,250 shares at $ .50.

The OPTIONS may not be sold, transferred, pledged, assigned, or otherwisealienated or hypothecated, other than by will, or by the laws of descent anddistribution, except that if permitted by GLD'S committee appointed by the Boardof Directors to administer the PLAN (hereinafter referred to as "COMMITTEE"),HITNER may name a beneficiary or beneficiaries to whom any vested but unpaidOPTIONS shall be paid in the event of the HITNER'S death.

2. Tender and Assignment. The exercise of this OPTIONS by HITNER mustbe accomplished by actual delivery to GLD of the PER SHARE EXERCISE PRICE forthe number of OPTION SHARES being purchased in cash, certified check, orofficial bank draft in lawful money of the United States of America, and by



actual delivery of a duly executed exercise form, a copy of which is attached tothis AGREEMENT as Exhibit "1" (hereinafter referred to as "EXERCISE FORM"),properly executed by HITNER and setting forth the number of OPTION SHARES beingpurchased. The payment of the PER SHARE EXERCISE PRICE for the number of OPTION

SHARES being purchased and the executed EXERCISE FORM must be delivered,personally, or by mail, to GLD's attorney, Thomas R. Tatum, Esq., Brinkley,McNerney, Morgan, Solomon & Tatum, LLP, 200 East Las Olas Boulevard, Suite#1800, Fort Lauderdale, Florida 33301. Documents sent by mail shall be deemed tobe delivered when they are received by GLD's attorney. Upon the tender to GLD'sattorney of the PER SHARE EXERCISE PRICE for the number of OPTION SHARES beingpurchased and EXERCISE FORM, GLD shall assign the number of OPTION SHARES beingpurchased to HITNER, which shall be free from all taxes, liens and charges.

3. Exercise Period. HITNER may only exercise the OPTIONS during theexercise period (hereinafter referred to as "EXERCISE PERIOD"). The EXERCISEPERIOD shall commence on the GRANT DATE and shall terminate on the earliest tooccur of: (A) the expiration of five (5) years from the GRANT DATE; (B) theexpiration of three (3) months from the date HITNER ceases to be employed by GLDfor any reason other than HITNER'S death or disability (which for purposes ofthis AGREEMENT shall mean a permanent and total disability within the meaning ofSection 22(e)(3) of the Internal Revenue Code of 1986, as amended, provided thatthe GLD'S committee appointed by the Board of Directors to administer the PLANmay determine whether a permanent and total disability exists in accordance withuniform and non-discriminatory standards adopted by such committee from time totime); or (C) the expiration of one (1) year from the date HITNER ceases to beemployed by GLD due to HITNER'S disability or death.

4. Notices. Any and all notices given to HITNER must be given by firstclass mail, postage prepaid, addressed to HITNER at the address appearing in therecords of GLD. Any and all notices given to GLD must be given personally or byfirst class mail, postage prepaid, addressed to GLD at GLD's headquarters and toGLD's attorney, Thomas R. Tatum, Esq., Brinkley, McNerney, Morgan, Solomon &Tatum, LLP, 200 East Las Olas Boulevard, Suite #1800, Fort Lauderdale, Florida33301.

5. Partial Exercises of Options. Subject to the terms hereof, theOPTIONS may be exercised in whole or in part.

6. Conflicts with Laws or Plan. This AGREEMENT is intended to complywith applicable law and all applicable terms and conditions of the PLAN, asamended from time to time, which is incorporated herein by reference in itsentirety. To the extent any provision of this AGREEMENT is illegal or shallconflict with the terms of the PLAN, the terms of the PLAN shall control, theunenforceable or conflicting provision of this AGREEMENT shall be deemed null



and void to the extent permitted by law and deemed advisable by the COMMITTEE,and the remainder of this AGREEMENT shall be valid and enforceable in accordancewith its terms.

7. Governing Law. This AGREEMENT shall be governed by, and construedand enforced in accordance with, the laws of the State of Florida, excluding theconflicts of laws principles thereof.

2

8. Amendment. This AGREEMENT may not be modified or amended except by awriting executed by all of the parties hereto.

9. Construction. This AGREEMENT shall be construed without regard toany presumption or other rule of law requiring construction against the partycausing this AGREEMENT to be drafted.

10. Headings. Article headings shall not be deemed to be a part of theprovisions of such articles or have any affect upon the construction thereof,but the same were inserted for the purpose of reference only.

IN WITNESS WHEREOF, the parties have executed this AGREEMENT effectivethis 1st day of February, 2000.

GROUP LONG DISTANCE, INC.

By: /s/ Glenn Koach-------------------------- --------------------------

Glenn Koach, President--------------------------AS TO GLD

/s/ SAM D. HITNER-------------------------- ----------------------------

SAM D. HITNER--------------------------AS TO HITNER

3

EXHIBIT "1"-----------

EXERCISE OF STOCK OPTIONS

Thomas R. Tatum, Esq.



Brinkley, McNerney, Morgan, Solomon & Tatum, LLP200 East Las Olas Boulevard, Suite #1800Fort Lauderdale, Florida 33301

Dear Mr. Tatum:

The undersigned hereby: (1) irrevocably exercises his option to purchase

____________ shares (at $ .20)____________ shares (at $ .40)____________ shares (at $ .50)

of common stock of Group Long Distance, Inc., a Florida corporation, pursuant tothe Incentive Stock Option Agreement dated February 1, 2000, a copy of which isenclosed for your reference; (2) encloses payment of $___________ for theseshares; and (3) requests that a certificate for the shares be issued in the nameof the undersigned and delivered to the undersigned at the address specifiedbelow.

Date: _____________, _________.------------------------------------

SAM D. HITNER

Address:

------------------------------------

------------------------------------

The foregoing instrument was sworn to, subscribed and acknowledgedbefore me this ______ day of ____________________, ____________, by Sam D.Hitner, who is personally known to me or who has produced his driver's licenseas identification.

------------------------------------Notary Public, State of Florida

[Notary Seal]



<TABLE> <S> <C>

<ARTICLE> 5<LEGEND>

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROMGROUP LONG DISTANCE, INC. FINANCIAL STATEMENTS ENDED JANUARY 31, 2000AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIALSTATEMENTS.

</LEGEND>

<S> <C><PERIOD-TYPE> 9-MOS<FISCAL-YEAR-END> APR-30-2000<PERIOD-END> JAN-31-2000<CASH> 1,182,356<SECURITIES> 0<RECEIVABLES> 833,059<ALLOWANCES> (248,000)<INVENTORY> 0<CURRENT-ASSETS> 1,932,854<PP&E> 135,125<DEPRECIATION> (128,046)<TOTAL-ASSETS> 1,939,933<CURRENT-LIABILITIES> 2,357,166<BONDS> 0<PREFERRED-MANDATORY> 0<PREFERRED> 0<COMMON> 0<OTHER-SE> (417,233)<TOTAL-LIABILITY-AND-EQUITY> 1,939,933<SALES> 11,793,895<TOTAL-REVENUES> 11,793,895<CGS> 4,257,870<TOTAL-COSTS> 4,257,870<OTHER-EXPENSES> 1,065,032<LOSS-PROVISION> 430,758<INTEREST-EXPENSE> (31,721)<INCOME-PRETAX> 6,071,956<INCOME-TAX> 2,125,000<INCOME-CONTINUING> 3,946,956<DISCONTINUED> 0<EXTRAORDINARY> 0<CHANGES> 0<NET-INCOME> 3,946,956<EPS-BASIC> 1.13<EPS-DILUTED> 1.13

</TABLE>

