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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                              --------------------
                                  FORM 10-KSB

(Mark One)
/X/     ANNUAL REPORT UNDER SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]

                    For the fiscal year ended April 30, 1997

                                       OR

/ /     TRANSITION REPORT UNDER SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE
        ACT OF 1934 [NO FEE REQUIRED].

             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
    Incorporation or Organization)                      Identification No.)

                       1451 West Cypress Road, Suite 200,
                            Fort Lauderdale, FL 33309
                    ----------------------------------------
                    (Address of Principal Executive Offices)

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

         Securities registered under Section 12(b) of the Exchange Act:

                                                       Name of Each Exchange
        Title of Each Class                             on Which Registered
    --------------------------                       -------------------------
    Common Stock, no par value                       Boston Stock Exchange and
                                                       Nasdaq SmallCap Market
    Redeemable Warrants                              Boston Stock Exchange and
                                                       Nasdaq SmallCap Market

        Securities registered pursuant to Section 12(g) of the Act: None

         Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes /X/  No / /

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /

Revenues for the fiscal year ended April 30, 1997 were $23,430,846.

The aggregate market value of voting stock held by non-affiliates as of July 15,
1997 was $15,905,976.

The number of shares of Common Stock, no par value, outstanding as of July 15,
1997 was 3,462,354.

The number of Redeemable Warrants outstanding as of July 15, 1997 was 1,437,500.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders, which will be filed on or before August 28, 1997, are incorporated
by reference into Part III of this Report.

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                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----
Item 1.  Description of Business..........................................   1
         The Company......................................................   1
         Services and Products............................................   3
         Acquisitions.....................................................   4
         Industry Background and Government Regulation....................   5
         Competition......................................................   7
         Employees........................................................   8

Item 2.  Description of Property..........................................   8

Item 3.  Legal Proceedings................................................   9

Item 4.  Submission of Matters to a Vote of Securities Holders............  11

Item 5.  Market for Common Equity and Related Stockholder Matters.........  11

Item 6.  Management's Discussion and Analysis or Plan of Operation........  13
         Overview.........................................................  13
         Acquisitions.....................................................  15
         Results of Operations............................................  16
         Liquidity and Capital Resources..................................  18
         Effects of Inflation.............................................  21
         Legal Proceedings................................................  22
         Factors That Could Affect Operating Results......................  23

Item 7.  Financial Statements.............................................  25

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.............................................  25

Item 9.  Directors and Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act................  25

Item 10. Executive Compensation...........................................  25

Item 11. Security Ownership of Certain Beneficial Owners and Management...  26

Item 12. Certain Relationships and Related Transactions...................  26

Item 13. Exhibits, List and Reports on Form 8-K...........................  27

Signature Page............................................................  31

Reports of Independent Public Accountants................................. F-1

Financial Statements...................................................... F-2


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This Annual Report on Form 10-KSB contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission ("SEC") filings
and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements due to risks and factors identified
from time to time in the Company's filings with the SEC including those
discussed in this Report.

                                     PART I

Item 1.  Description of Business

The Company

         Group Long Distance, Inc. (the "Company") is a long distance
telecommunications provider. The Company utilizes special network service
contracts through major national long-distance telecommunications carriers to
provide its customers with products and services which include basic "1 plus"
and "800" long distance services, as well as local, Internet, e-mail and data
services and prepaid calling cards. During the first quarter of its 1998 fiscal
year, the Company discontinued its international call back business. The Company
was incorporated under the laws of Florida in September 1995 by ITC Integrated
System, Inc. ("ITC"), an unaffiliated third party, under the name Second ITC
Corporation ("Second ITC") as the successor to the business of Group Long
Distance, Inc. ("GLD"), which was incorporated under the laws of Florida in July
1990. In November 1995, GLD was merged into Second ITC and Second ITC
simultaneously changed its name to Group Long Distance, Inc. Unless otherwise
indicated, all references to the Company include GLD, the Company's predecessor,
and the Company's wholly-owned subsidiaries.

         For the fiscal years ended April 30, 1997, 1996 and 1995, the Company's
revenues were $23.4 million, $12.4 million and $9.6 million, respectively. The
majority of the Company's revenues are derived from calls routed through
Tel-Save, Inc. ("Tel-Save"), a switch-based reseller. Such revenues represented
74%, 61% and 67% of total revenues for the fiscal years ended April 30, 1997,
1996 and 1995, respectively.

          As a non-facilities based reseller of long distance telecommunication
services, the Company utilizes service contracts to provide its customers with
switched, dedicated and private line services to various long distance
telecommunications networks. Because the Company does not own or operate any
primary transmission facilities, it is dependent on a limited number of long
distance carriers and numerous regional and local telephone companies to provide
its services and products. The Company has entered into agreements with
Tel-Save, WorldCom/LDDS Inc. ("WorldCom"), Intermedia Communications Inc.
("ICI") and other long distance carriers which provide access to phone lines and
transmission facilities necessary to transmit customer calls. The Company has
also entered into an agreement with UUNET Technologies, Inc. to provide Internet
access. Through these contracts, the Company has obtained volume discounts on
long distance rates by committing to purchase


<PAGE>


minimum volumes of telecommunications usage each month. The Company then resells
these discounts to commercial customers which would not otherwise qualify due to
their low individual telecommunications usages.

         To obtain favorable rates from its carriers, the Company has committed
to purchase certain minimum volumes of long distance services during stated
periods, whether or not such volumes are used. For the fiscal years ended April
30, 1997 and 1996, these commitments aggregated approximately $8,600,000 and
$3,200,000, respectively. Pursuant to its current agreements with its carriers,
the Company's volume commitments will increase substantially during the next two
years to an aggregate of approximately $36,000,000 for the year-ended April 30,
1998 and leveling off to an aggregate of $51,100,000 for the year ended April
30, 1999 and thereafter. Failure to satisfy volume purchase commitment or price
increases by carriers could materially adversely affect the Company's future
operating results. The Company periodically renegotiates its volume commitments
with its carriers.

         The Company's customers are primarily small and medium-sized businesses
and historically have been located principally in the Southeastern United
States. As a result of its marketing efforts and acquisitions, however, the
Company has been able to expand its geographical market to include all of the
United States, except Alaska and Vermont, and the Caribbean region. The Company
targets customers whose telecommunications usage needs generally do not qualify
for major carriers' volume discounts or for the level of support services made
available to higher volume users. As of April 30, 1997, the Company had
approximately 44,000 customers.

         The Company currently markets its services and products through two
distinct channels: independent telemarketers and direct sales. Historically, the
Company has also utilized field service personnel, independent agents and
distributors in its marketing efforts, and has sold certain of its
telecommunications services on a wholesale basis to smaller resellers.

         The Company relies on the marketing of its services to generate a
significant portion of its revenues. Telemarketers are compensated by negotiated
commissions on business generated for the Company. The Company typically grants
a nonexclusive right to solicit customers and requires its telemarketers to
maintain minimum billing and customer retention levels. In contrast, the
Company's direct sales personnel receive an initial commission for securing a
sale and a residual commission so long as that customer and the direct sales
personnel remain with the Company.

         As a result of the economic efficiencies afforded by using independent
telemarketers, the Company has significantly increased its use of telemarketers
during the calendar 1997 year. The Company anticipates that it will become
increasingly dependent upon these independent telemarketers to market its
services.

         The Company operates in a highly fragmented segment of the
telecommunications industry and has historically expanded its operations through
the acquisition of customer bases. The Company regularly evaluates possible
acquisition opportunities and may seek to acquire smaller resellers and
customer bases in order to expand the distribution of its services and


                                       2

<PAGE>

products and its geographic markets. On August 11, 1997 the Company acquired all
the issued and outstanding capital stock of Eastern Telecommunications
Incorporated, a New York-based reseller of long-distance services. (See
Management's Discussion and Analysis ("MD&A") -- Subsequent Events and Note Q to
the Notes to the Financial Statements.) Except as otherwise disclosed herein,
the Company has no plans, agreements, commitments, understandings or
arrangements with respect to any acquisition. There can be no assurance that the
Company will ultimately effect any acquisition, that the Company will not
experience increased customer attrition as a result of any acquisition, that the
Company be able to successfully integrate into its operations any business or
customer base which it may acquire, or that the Company will be able to service
any debt or other obligations incurred in connection with any acquisition.

         On March 24, 1997, the Company commenced an underwritten public
offering (the "Offering") whereby 1,250,000 shares of its Common Stock, no par
value (the "Common Stock"), and warrants to purchase 1,437,500 shares of Common
Stock (the "Redeemable Warrants") were sold. Of the Redeemable Warrants sold,
warrants to purchase 187,500 shares of Common Stock were sold pursuant to the
underwriters' over-allotment option. Net proceeds to the Company from the
Offering were approximately $3.9 million. Approximately $2.5 million of the
proceeds from the Offering have been used for working capital and general
business purposes, including the repayment of certain indebtedness, as well as
the Company's marketing and sales purposes. The Company anticipates using the
balance of the proceeds from the Offering for similar purposes. In connection
with the Offering, the Company also sold to the underwriters, for a nominal
amount, underwriters' warrants to purchase 125,000 shares of Common Stock at an
exercise price equal to $4.95 per share and warrants to purchase 125,000
Redeemable Warrants at $.11 per Redeemable Warrant.

         The Company intends to actively pursue a strategy of continued growth
and will seek to expand the distribution of its services and products and
maximize penetration of new and existing geographic markets. The Company intends
to expand its marketing activities by increasing the use of independent
telemarketers. The Company will also continue to (i) develop strategic marketing
relationships, (ii) regularly evaluate possible acquisition opportunities, and
(iii) improve operating and network efficiencies. The Company's ability to
achieve these objectives will be affected by, and to a certain extent dependent
on, many factors that are beyond the control of the Company. Thus, no assurance
can be given that such objectives can be or will be achieved.

Services and Products

         The Company's principal services which have historically accounted for
all of the Company's revenues, are its basic "1 plus" and "800" long distance
services. Such services accounted for 95%, 97% and 99% of total revenues for the
fiscal years ended April 30, 1997, 1996 and 1995, respectively.

         The Company also offers the following services and products, which in
the aggregate accounted for 5%, 3% and less than 1% of the Company's total
revenues for the fiscal years ended April 30, 1997, 1996, 1995, respectively.


                                       3

<PAGE>

         Prepaid Calling Cards. Since 1995, the Company has offered its "EZ
Call" prepaid calling cards directly to customers. The Company's calling card is
prepaid and may also have additional time added to it by using a major credit
card. Since 1996, the Company has been a party to an agreement with Target
Stores, a retail department store chain, regarding the sale of the prepaid
calling cards through their stores.

         IntraLATA Toll Service. IntraLATA calls are non-local toll calls made
within a state. Since 1995, as a result of regulatory changes, the Company has
been able to offer IntraLATA service to existing long distance customers,
thereby enabling its customers to initiate their IntraLATA toll calls in the
same manner that a normal long distance call is initiated.

         Internet Access. The Company offers a service which includes Internet
domain registration and services (e.g., design, placement and advertising), Web
sites, monthly access to the Internet for dial-up and dedicated usage, and a
discounted "800" service to respond and/or reply to the customers' eventual
order flow. This package also includes e-mail, Web browser, Internet dialer and
search engines, and facsimile-related services. The Company has offered this
service since 1996.

         The Company markets its basic long distance services "bundled" with
other services and products, such as local telecommunications access, Internet
access and fax broadcast services. The Company believes that if it is successful
in bundling its services, it may increase revenue per customer and decrease
customer attrition. The Company also believes that such bundling should be
attractive to small businesses seeking to obtain a variety of services from a
single provider. No assurance, however, can be given that such objectives can be
achieved.

         The Company has historically experienced delays in provisioning
(activating new customers) by its carriers. In an effort to improve provisioning
efficiencies, beginning in the fourth quarter of its 1997 fiscal year, new
customers of domestic switched, basic "1 plus" and "800" services have been
provisioned through Tel-Save's own nationwide telecommunications network, One
Better Net ("Tel-Save's OBN"). This network enables the Company to provide the
quality of AT&T (now Lucent Technologies, Inc.) switches and AT&T-provided
transmission facilities and billing services. The Company also offers direct
billing services to customers serviced by WorldCom and ICI. The Company receives
monthly records from its carriers which detail the calls made by its customers.
The Company then rates the calls and bills its customers directly. The Company
is dependent upon the timely receipt and accuracy of call data records provided
by its carriers.

Acquisitions

         The Company has historically expanded its operations through the
acquisitions of customer bases. For the three-year period ended April 30,
1997, the Company made the following acquisitions: (See MD&A -- Subsequent
Events and Note Q to the Notes to the Financial Statements.)

         In January 1997, the Company purchased from Great Lakes
Telecommunications Corp. ("Great Lakes") (i) a customer base consisting of
approximately 7,000 customers that were subject to an agreement between Great
Lakes and Tel-Save and (ii) a warrant to purchase 200,000 shares of common stock
of Tel-Save in consideration of $1,200,000 in cash. In


                                       4

<PAGE>

connection with the acquisition, the Company borrowed $1,200,000 from Tel-Save.
In January 1997, Tel-Save repurchased the warrants from the Company in
consideration of $1,800,000 and credited the Company with such amount
($1,200,000 to repay the loan made in January 1997 and $600,000 to reduce the
outstanding principal balance under the Acquisition Loan, described below).

         In July 1996, the Company acquired all of the issued and outstanding
capital stock of Adventures-in-Telecom, Inc. ("AIT"), a non-facilities based
reseller of long distance communications services. The purchase price was
comprised of $5,271,230 in cash and 200,000 restricted shares of Common Stock of
the Company. The acquired company consisted of a customer base of 30,000 small
businesses. In December 1996, the Company agreed with the former shareholders of
AIT to cancel 45,000 of the 50,000 shares that were subject to certain holdback
provisions, in settlement of certain claims by the Company against the AIT
shareholders. In July 1996, in connection with the AIT acquisition, the Company
entered into an agreement with Tel-Save pursuant to which it borrowed an
aggregate of $5,521,230 primarily to finance the purchase price of the
acquisition (the "Acquisition Loan"). As amended, the loan agreement provides
for the repayment of the Acquisition Loan in monthly payments of $125,000 plus
interest beginning after September 1997. To induce Tel-Save to provide the
financing for the purchase of AIT, the Company issued a warrant to purchase
300,000 shares of Common Stock of the Company at $5.75 per share and a warrant
to purchase 50,000 shares of Common Stock of the Company at $5.00 per share.

         In May 1996, the Company acquired all of the issued and outstanding
capital stock of Gulf Communications Services, Inc. ("Gulf") in consideration of
$25,000 in cash and the assumption of a promissory note in the principal amount
of $182,000. The note is payable in equal monthly installments of $10,000 and is
due February 1, 1998. The acquired company operated switching equipment which
allowed it to act as an international call back and call through provider and
offered prepaid calling cards, Internet access, voice mail and facsimile
broadcast services. Its customer base included approximately 200 commercial
customers.

         In October 1995, the Company acquired a customer base of approximately
1,000 small businesses from Touchtone Network, Inc. in consideration of
$553,223.

         In February 1995, the Company acquired a customer base of approximately
350 small businesses from Rockwell Communications, Inc. in consideration of
$37,045.

Industry Background and Government Regulation

         The Company's telecommunications services are subject to government
regulation. Federal law regulates domestic interstate and international
telecommunications, and state law regulates telecommunications that originate
and terminate within the same state.

         The telecommunications industry's structure has until recently been
formed by a 1982 court decree (the "Consent Decree") between AT&T and the United
States Department of Justice which required the divestiture by AT&T of its Bell
operating companies and divided the country into 201 Local Areas and Transport
Areas ("LATAs"). The 22 Bell operating companies, which


                                       5

<PAGE>

were combined into seven Regional Bell Operating Companies ("RBOCs"), were
allowed to provide local telephone service, local access service to long
distance carriers and service within LATAs ("intraLATA service"). However, the
right to provide service between LATAs ("InterLATA service") was restricted to
AT&T and other long distance carriers.

         To encourage competition in the long distance market, the Consent
Decree and certain FCC regulations require most RBOCs and other local exchange
carriers ("LECs") to provide access to local exchange services that is "equal in
type, quality and price" to that provided to AT&T and with the opportunity to be
selected by customers as their preferred long distance carrier. These "equal
access" provisions are intended to prevent preferential treatment of AT&T by
LECs and, with other regulatory, judicial and technological factors, have helped
smaller companies to become competitive alternatives to AT&T, MCI
Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint") for
long distance services. A May 1996 FCC report stated that as of December 31,
1994 there were 465 long distance carriers purchasing equal access services from
LECs in the United States. Included in these carriers are the "first tier" of
AT&T, MCI and Sprint, a "second tier" of somewhat smaller carriers, such as
WorldCom, Allnet Communications Services, Inc., Cable & Wireless Communications
and LCI International, and a "third tier" of the remaining companies.

         The long distance industry may be significantly altered in the future
by two recent regulatory enactments. First, in October 1995, the FCC terminated
AT&T's previous price cap regulations regarding service to residences and small
businesses and now allows AT&T to file effective rate schedules on one day's
notice, thereby limiting competitors' previous ability to protest such tariffs.
These changes give AT&T increased flexibility that may permit it to compete more
effectively with smaller long distance service providers, such as the Company,
particularly in regard to the small business customers which compose the vast
majority of the Company's customer base. Second, on February 8, 1996, the
President signed the Telecommunications Act, designed to introduce more
competition into U.S. telecommunications markets. This Act increases the
potential for competition in both the long distance services market, by removing
the prohibitions against RBOCs providing long distance services, and in the
local services market by requiring LECs to permit interconnection to their
networks, thus allowing long distance and regional carriers to compete in local
markets. Due to these changes, the Company may be forced to compete with both
RBOCs and long distance carriers to a greater degree than in the past.

         Federal Regulation. International non-dominant carriers must maintain
tariffs on file with the FCC. The tariffs of non-dominant carriers, such as the
Company, are presumed lawful and are seldom contested, although those tariffs
and the rates and charges they specify are subject to FCC review.

         In October 1996, the FCC adopted an order which required nondominant,
interstate, interexchange carriers, such as the Company, to withdraw their
tariffs, insofar as such tariffs apply to interstate services (the "Detariffing
Order"). Recently, the United States Court of Appeals for the District of
Columbia Circuit granted motions for stay of the Detariffing Order, pending
judicial review. According to an FCC Public Notice, the result of this stay is
that the tariffing rules in place prior to the effectiveness of the Detariffing
Order are in effect, and


                                       6

<PAGE>

nondominant carriers providing interstate, domestic interexchange services
continue to be required to file tariffs pursuant to the FCC's Rules.

         Among domestic local carriers, only the current LECs are presently
classified by the FCC as dominant carriers for the provision of interstate
access services. This means that the FCC regulates many of the LECs' rates,
charges and services to a larger degree than the Company's. The FCC's regulation
of LECs is expected to decrease over time, especially given the 1996
Telecommunications Act. The FCC has proposed that RBOCs that provide
out-of-region long distance services be regulated as non-dominant carriers.

         State Regulation. The intrastate long distance operations of the
Company are also subject to various state law and regulations, including prior
certification, notification and registration requirements. The vast majority of
states require the Company to apply for certification to provide intrastate
telecommunications services, or at least to register or be found exempt from
regulation, before commencing intrastate services. Most states also require the
Company to file and maintain detailed tariffs listing their rates for intrastate
service. Many states also impose various reporting requirements and/or require
prior approval for transfers of control of certified carriers, assignment of
carrier assets, including customer bases, carrier stock offerings and incurrence
by carriers of significant debt obligations. Certificates of authority can
generally be conditioned, modified, cancelled, terminated or revoked by state
regulatory authorities for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Fines and other
penalties may also be imposed for such violations.

         The Company provides interstate and international long distance service
in all or some portions of 50 states for which the Company has filed a tariff
with the FCC. The Company is authorized, pursuant to state regulations,
certifications, tariffs or notifications or on an unregulated basis, to provide
intrastate service in 48 states and is in the process of finalizing approval in
the State of Vermont. The Company does not provide intrastate service in Alaska.

Competition

         The Company faces intense competition in the marketing and sale of its
services and products. The Company's long distance, prepaid calling cards,
Internet and other services and products compete for consumer recognition with
other long distance, calling card, Internet and other services and products
which have achieved significant international, national and regional consumer
loyalty. Many of these services and products are marketed by companies which are
well-established, have reputations for success in the development and sale of
services and products and have significantly greater financial, marketing,
distribution, personnel and other resources than the Company. These resources
permit such companies to implement extensive advertising and promotional
campaigns, both generally and in response to efforts by additional competitors
to enter into new markets and introduce new services and products. Certain of
these competitors, including AT&T, MCI and Sprint, dominate the industry and
have the financial resources to enable them to withstand substantial price
competition which has continued to increase. These and other large telephone
companies have also entered or have announced their intention to enter into the
prepaid phone card and Internet segments of the telecommunications industry.
Because the reseller segment of the telecommunications industry has no
substantial


                                       7

<PAGE>

barriers to entry, competition from smaller resellers in the Company's target
markets is also expected to continue to increase significantly. The markets for
telecommunications services and products are also characterized by rapidly
changing technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles. The proliferation of new
telecommunications technologies, including personal communication services,
cellular telephone services and products and prepaid phone cards employing
alternative "smart" card technologies, may reduce demand for traditional
land-line long distance telephone services generally and the Company's services
in particular. The Company's success will depend on the Company's ability to
anticipate and respond to these and other factors affecting the industry,
including changes in customer preferences, business and demographic trends,
unfavorable general economic conditions and discount pricing strategies by
competitors.

         Recent regulatory changes may also result in significantly increased
competition. In October 1995, the FCC terminated AT&T's designation as a
dominant carrier, which will make it easier for AT&T to compete directly with
the Company for low volume commercial long distance customers. Also, the
recently adopted 1996 Telecommunications Act is designed to introduce increased
competition in domestic telecommunications markets by facilitating the entry of
any entity (including cable television companies and utilities) into both the
long distance and local telecommunications markets. Consequently, this act
increases the potential for increased competition by permitting long distance
and regional carriers in local markets and the well-capitalized RBOCs and local
exchange carriers in long distance markets.

Employees

         As of April 30, 1997, the Company employed 29 persons on a full-time
basis. None of the Company's employees are represented by a union. The Company
considers relations with its employees to be satisfactory.

Item 2.  Description of Property

         The Company's offices located at 1451 West Cypress Creek Road, Suite
200, Fort Lauderdale, Florida are leased by the Company under a four-year lease
which expires in March 2000 and comprises 7,950 square feet. The Company pays
rent of approximately $8,000 per month, which is subject to a 4% adjustment on
an annual basis.

         The Company has closed its sales office located in Winter Park, Florida
and is attempting to sublet its lease which expires on December 31, 1998 for the
925 square foot space. The Company pays rent of approximately $1,000 per month,
which is subject to a 4% adjustment on an annual basis.

         The Company believes its existing facilities are adequate to meet
current needs and it does not anticipate any difficulty in negotiating renewals
as leases expire or in finding other satisfactory space if existing facilities
become unavailable or if additional space is needed.


                                       8

<PAGE>

Item 3.  Legal Proceedings

Current Legal Proceedings. The Company is a defendant in a civil action styled
AT&T Corp. v. Group Long Distance, Inc., Civil Action No. 97-2226 (NAP), pending
in the United States District Court for the District of New Jersey. In this
action brought in April 1997, AT&T seeks $612,324 and attorneys' fees as damages
for breach of a settlement agreement entered into between AT&T and the Company
in 1993. AT&T also seeks to recover this $612,324 under a separate claim for
unpaid tariff charges. The Company has answered the complaint and asserted
certain counterclaims. These counterclaims include claims for rescission of the
settlement agreement as well as for damages in contract, in tort and pursuant to
the Federal Communications Act. The Company vigorously plans to litigate this
matter. While the Company cannot predict with certainty the outcome of this
litigation, the Company's results of operation or cash flow in a particular
quarterly or annual period could be materially affected by protracted litigation
or an unfavorable decision.

          In 1996, Nortel, Inc. ("Nortel") and Accutel Communications, Inc.
("Accutel") filed combined suits against the Company in a civil action styled
Nortel, Inc. and Accutel Communications, Inc. v. Group Long Distance, Inc., No.
CACE-96-014773 (07) (Broward County, Fla.), alleging causes of action for
anticipatory breach of contract and breach of contract arising from the
termination by the Company of service under a service contract and independent
marketing distributor agreement with each party. The Company terminated the
telephone services of Nortel and terminated the distributor relationship with
Accutel for breaches of contract, including the failure to comply with the
payment terms of their contracts. Nortel and Accutel have alleged that the
Company anticipatorily and wrongfully terminated their contracts, and Accutel
claims that the Company owes it $89,664 in unpaid commissions. Nortel sued for
an injunction against the Company's termination of telephone services and was
awarded an ex-parte temporary injunction, but at a hearing for dissolution of
the order the Court immediately ordered the dissolution of the prior injunction
and ordered all parties to attend mediation scheduled for November 1997. The
Company believes it was justified in terminating service in accordance with the
contracts and intends to defend vigorously its position. However, there can be
no assurance to the outcome of this action.

Other Legal Proceedings. In 1991, the Company borrowed approximately $125,000
from Mr. Harold Sutton, which was originally secured by 100,000 shares of the
Company's Common Stock. At April 30, 1996, the Company owed Mr. Sutton $17,069
and Mr. Sutton and the Company were in a dispute over the ownership of the
100,000 shares originally pledged. In January 1997, the Company sought a
declaratory judgment and judicial determination as to the amount in dispute. On
April 28, 1997, the matter was settled for $52,000 in final settlement of all
claims against the Company.


                                       9

<PAGE>


Other Matters and Indemnification. Pursuant to the Plan and Agreement of Merger
dated November 14, 1995 (the "Plan"), Group Long Distance, Inc., a Florida
corporation ("GLD"), was merged (the "Merger") into Second ITC and Second ITC
changed its name to Group Long Distance, Inc. The Plan stated that the
shareholders of GLD would own 94% of the outstanding shares of Second ITC and
the existing shareholders of Second ITC would own the remaining 6% of the shares
outstanding. Because the founders of GLD held certain founding shares (the
"Founders' Shares") in Second ITC, there was a partial dilution of the interests
received by the shareholders of GLD in the Merger from 94% to 87.5% (the
"Dilution"). While the Merger was approved by the Board of Directors and a
majority of the shareholders of the Company that were shareholders of GLD (the
predecessor) at the time of the Merger and a majority of the then current
shareholders of the Company, shareholders affected by the Dilution may have a
cause of action against the Company. There can be no assurance that a
shareholder may not seek legal remedy against the Company or the individual
founders, notwithstanding the foregoing approvals. In the event any such action
is brought, the Company's results of operations or cash flow for a particular
quarterly or annual period could be materially affected by protracted litigation
or an unfavorable outcome.

         In connection with the foregoing matter, pursuant to an indemnification
agreement, the Company and each of the founders, jointly and severally, have
agreed to indemnify the underwriters to the Offering, and each of the founders
has agreed to indemnify the Company, for any and all losses, claims, damages,
expenses or liabilities (including reasonable legal fees and expenses) as a
result of any claim arising out of or based upon the failure to disclose the
issuance of the shares to the founders and in the event that as a result of any
such claim, the Company is required to issue additional shares of Common Stock,
the founders have agreed to deliver an equal number of shares of Common Stock to
the Company for cancellation.

General. The Company is from time to time the subject of complaints or
litigation in the ordinary course of its business. Except as disclosed, the
Company believes that such lawsuits, claims and other legal matters to which it
has become subject are not material to the Company's financial condition or
results of operations, but an existing or future lawsuit or claim resulting in
an unfavorable outcome to the Company could have a material adverse effect on
the Company's financial condition and results of operations.


                                       10

<PAGE>

Item 4.  Submission of Matters to a Vote of Securities Holders

         As of February 21, 1997, the following actions were approved by a
majority of shares of the Company entitled to vote thereon by written consents
in lieu of a special meeting of shareholders:

         1. Of the 2,212,354 shares entitled to vote, written consents
representing 1,274,172 shares were received approving and adopting the Amended
and Restated Articles of Incorporation by written consent, dated as of January
15, 1997. The balance of the shares entitled to vote thereon abstained.

         2. Of the 2,212,354 shares entitled to vote, written consents
representing 1,274,172 shares were received approving and adopting the Group
Long Distance, Inc. 1996 Stock Option Plan by written consent, dated as of
January 15, 1997. The balance of the shares entitled to vote thereon abstained.

         3. Of the 2,212,354 shares entitled to vote, written consents
representing 1,293,225 shares were received ratifying and approving the issuance
of shares in a predecessor corporation ("Second ITC") to certain founding
shareholders of Second ITC, prior to the merger of GLD with and into Second ITC
(the "Merger"), that resulted in a partial dilution to shareholders of GLD after
the Merger by written consent, dated as of January 15, 1997. The balance of the
shares entitled to vote thereon abstained.

         No other matters were submitted by the Company to a vote of
shareholders, through the solicitation of proxies or otherwise, during the
quarter ended April 30, 1997.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

         Price Range of Common Stock and Redeemable Warrants. Since March 31,
1997, the date the following shares first traded, the Common Stock and the
Redeemable Warrants have been quoted on the Nasdaq SmallCap Market under the
symbols "GLDI" and "GLDIW," respectively, and on the BSE under the symbols "GPL"
and "GPLW", respectively. Prior to March 31, 1997, the Common Stock traded on a
limited basis on the OTC Bulletin Board, under the symbol "GLDT" and prior to
that date the Redeemable Warrants did not trade.

         The following sets forth, for the periods indicated, high and low per
share bid information for the Common Stock reported on the Nasdaq SmallCap
Market. Such high and low bid information reflect inter-dealer quotas without
retail, mark-up, mark down or commissions and may not represent actual
transactions:


                                       11

<PAGE>


                     For the period beginning April 1, 1996
                            and ending April 30, 1996
                 ----------------------------------------------
                     High                           Low
                 ----------------------------------------------

                   $5.0625                        $4.875


                                            For the period beginning
                                                May 1, 1996 and
                                             Ending April 30, 1997
                                          ---------------------------
                                               High          Low
         -----------------------------------------------------------
      
         First Quarter.................      $ 7.50        $ 3.25
         Second Quarter................        6.50          5.375
         Third Quarter.................        5.50          3.50
         Fourth Quarter................        5.00          2.625

         The following table sets forth, for the period beginning March 31, 1997
(the date that the Company's Redeemable Warrants first traded) and ending April
30, 1997, the high and low sales price as reported on the Nasdaq National Market
System.

                     For the Period beginning March 31, 1997
                            and ending April 30, 1997
                 ----------------------------------------------
                         High                      Low
                 ----------------------------------------------

                        $1.875                   $0.75

         Dividend Information. The Company has not paid any cash dividends to
date and does not anticipate or contemplate paying dividends in the foreseeable
future. It is the present intention of management to utilize all available funds
for the development of the Company's business.

         Approximate Number of Security Holders. As of July 15, 1997, the
Company had approximately 137 registered holders of record of the Common Stock
and 6 registered holders of record of the Redeemable Warrants.


                                       12

<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation

         The following discussion and analysis of significant factors affecting
the Company's operating results and liquidity and capital resources should be
read in conjunction with the accompanying financial statements and related
notes.

Overview

         Group Long Distance, Inc. (the "Company") is a long distance
telecommunications provider. The Company utilizes special network service
contracts through major national long distance telecommunications carriers to
provide its customers with products and services which include basic "1 plus"
and "800" long distance services, as well as local, Internet, e-mail and data
services and prepaid calling cards. As a nonfacilities based reseller of long
distance telecommunication services, the Company utilizes service contracts to
provide its customers with switched, dedicated and private line services to
various long distance telecommunications networks such as Tel-Save, Inc.
("Tel-Save"), WorldCom/LDDS Inc. ("WorldCom"), and Intermedia Communications
Inc. ("ICI"). The Company is dependent on a limited number of long distance
carriers and numerous regional and local telephone companies to provide its
services and products. The majority of the Company's revenues are derived from
calls routed through Tel-Save. Such revenues represented 74%, 61% and 67% of
total revenues for the years ended April 30, 1997, 1996 and 1995, respectively.

         To obtain favorable rates from its carriers, the Company has committed
to purchase certain minimum volumes of long distance services during stated
periods, whether or not such volumes are used. For the years ended April 30,
1997 and 1996, these commitments aggregated approximately $8,600,000 and
$3,200,000, respectively. Pursuant to its current agreements with its carriers,
the Company's volume commitments will increase substantially during the next two
years to an aggregate of approximately $36,000,000 for the year-ended April 30,
1998 and leveling off to an aggregate of $51,100,000 for the year ended April
30, 1999 and thereafter. Failure to satisfy volume purchase commitment or price
increases by carriers could materially adversely affect the Company's future
operating results. The Company periodically renegotiates its volume commitments
with its carriers.

         The Company relies on the marketing of its services, which is currently
performed by independent telemarketers and direct sales personnel, to generate a
significant portion of its revenues. During the calendar 1997 year, the Company
has significantly increased its use of telemarketers, and anticipates that it
will become increasingly dependent upon these independent telemarketers to
market its services.

         The Company has historically experienced delays in provisioning
(activating new customers) by its carriers. In an effort to improve provisioning
efficiencies, beginning in the fourth quarter of its 1997 fiscal year, new
customers of domestic switched, basic "1 plus" and "800" services have been
provisioned through Tel-Save's own nationwide telecommunications network, One
Better Net ("Tel-Save's OBN"). This network enables the Company to provide the
quality of AT&T (now Lucent Technologies, Inc.) switches and AT&T-provided
transmission facilities and billing services. The Company also offers direct
billing services to customers serviced by WorldCom and ICI. The Company receives
monthly records from its


                                       13

<PAGE>

carriers which detail the calls made by its customers. The Company then rates
the calls and bills its customers directly. The Company is dependent upon the
timely receipt and accuracy of call data records provided by its carriers.

         The Company's operating results are significantly affected by customer
attrition rates. The Company believes that a high level of customer attrition in
the industry is primarily a result of national advertising campaigns,
telemarketing programs and customer incentives provided by major competitors, as
well as the termination of service for non-payment.

         In connection with the acquisition of Adventures-in-Telecom, Inc
("AIT") in July 1996, the Company acquired a customer base of approximately
30,000 small businesses and recorded an asset of approximately $6.6 million at
July 31, 1996, of which $5.6 million (net of receivables and marketing advances)
was to be amortized, over a five-year period. In December 1996, due to
significant attrition in the AIT customer base, the Company accelerated the
amortization of the acquisition costs of such base to the rate of 75% for the
first year (approximately $3,888,700) which had a material adverse effect on the
Company's operating results for the fiscal year ended April 30, 1997. The
Company expects to amortize the remaining balance of customer acquisition costs
of approximately $1,767,500 at the end of the first year after the AIT
acquisition, at a rate of 15% and 10%, respectively, over the second and third
years after such acquisition.

         There can be no assurance that assumed attrition rates underlying the
Company's amortization schedule will prove to be accurate or that customer
attrition rates will not increase in the future. Any significant increase in
customer attrition rates resulting in increased amortization expense will
continue to have a material adverse effect on the Company's operating results.
In the event that attrition rates increase as a result of increased competition,
the purchase of poorly performing customer bases or the inability to manage the
existing customer base due to transitional difficulties onto Tel-Save's OBN
network, the Company may continue to incur charges that result in losses.

         The Company's ability to continue and to expand its operations is
dependent upon the Company's ability to maintain satisfactory relationships with
existing carriers and independent telemarketers and establish relationships with
additional carriers and independent telemarketers.

         On March 24, 1997, the Company commenced an underwritten public
offering (the "Offering") whereby 1,250,000 shares of its Common Stock, no par
value (the "Common Stock"), and warrants to purchase 1,437,500 shares of Common
Stock (the "Redeemable Warrants") were sold. Of the Redeemable Warrants sold,
warrants to purchase 187,500 shares of Common Stock were sold pursuant to the
underwriters' over-allotment option. Net proceeds to the Company from the
Offering were approximately $3.9 million. Approximately $2.5 million of the
proceeds from the Offering have been used for working capital and general
business purposes, including the repayment of certain indebtedness, as well as
the Company's marketing and sales purposes. The Company anticipates using the
balance of the proceeds from the Offering for similar purposes. In connection
with the Offering, the Company also sold to the underwriters, for a nominal
amount, underwriters' warrants to purchase 125,000 shares of Common Stock at an
exercise price equal to $4.95 per share and warrants to purchase 125,000
Redeemable Warrants at $.11 per Redeemable Warrant.


                                       14

<PAGE>


         The Company operates in a highly fragmented segment of the
telecommunications industry and has historically expanded its operations through
the acquisition of customer bases. The Company regularly evaluates possible
acquisition opportunities and may seek to acquire smaller resellers and customer
bases in order to expand the distribution of its services and products and its
geographic markets. On August 11, 1997, the Company acquired all the issued and
outstanding capital stock of Eastern Telecommunications Incorporated, a New
York-based reseller of long-distance services. (See Subsequent Events hereof
and Note Q to the Notes to the Financial Statements.) Except as otherwise
disclosed herein, the Company has no plans, agreements, commitments,
understandings or arrangements with respect to any acquisition. There can be no
assurance that the Company will ultimately effect any acquisition, that the
Company will not experience increased customer attrition as a result of any
acquisition, that the Company be able to successfully integrate into its
operations any business or customer base which it may acquire, or that the
Company will be able to service any debt or other obligations incurred in
connection with such acquisition.

         The Company intends to actively pursue a strategy of continued growth
and will seek to expand the distribution of its services and products and
maximize penetration of new and existing geographic markets. The Company intends
to expand its marketing activities by increasing the use of independent
telemarketers. The Company will also continue to (i) develop strategic marketing
relationships, (ii) regularly evaluate possible acquisition opportunities, and
(iii) improve operating and network efficiencies. The Company's ability to
achieve these objectives will be affected by, and to a certain extent dependent
on, many factors that are beyond the control of the Company. Thus, no assurance
can be given that such objectives can be or will be achieved.

Acquisitions

         In January 1997, the Company purchased from Great Lakes
Telecommunications Corp. ("Great Lakes") (i) a customer base consisting of
approximately 7,000 customers that were subject to an agreement between Great
Lakes and Tel-Save and (ii) a warrant to purchase 200,000 shares of Common Stock
of Tel-Save in consideration of $1,200,000 in cash. In connection with the
acquisition, the Company borrowed $1,200,000 from Tel-Save. In January 1997,
Tel-Save repurchased the warrants from the Company in consideration of
$1,800,000 and credited the Company with such amount ($1,200,000 to repay the
loan made in January 1997 and $600,000 to reduce the outstanding principal
balance under the AIT Acquisition Loan, described below). The $600,000 reduction
of debt by Tel-Save has been accounted for as a contribution to paid-in capital
by Tel-Save. In connection with the acquisition, no value was assigned to the
customer base acquired.

         In July 1996, the Company acquired all of the issued and outstanding
capital stock of Adventures-in-Telecom, Inc. ("AIT"), a non-facilities based
reseller of long distance communications services. The purchase price was
comprised of $5,271,230 in cash and 200,000 restricted shares of Common Stock of
the Company. The acquired assets consisted of a customer base of approximately
30,000 small businesses. In December 1996, the Company agreed with the former
shareholders of AIT to cancel 45,000 of the 50,000 shares that were subject to
certain holdback provisions, in settlement of certain claims by the Company
against the AIT shareholders. In December 1996, the Company accelerated the
amortization of the


                                       15

<PAGE>

acquisition costs of the AIT customer base due to significant customer
attrition, resulting in $2,333,200 of additional amortization expense for the
year ended April 30, 1997. In connection with the AIT acquisition in July 1996,
the Company entered into an agreement with Tel-Save pursuant to which it
borrowed an aggregate of $5,521,230 primarily to finance the purchase price of
the acquisition (the "Acquisition Loan"). To induce Tel-Save to provide the
financing for the purchase of AIT, the Company issued a warrant to purchase
300,000 shares of Common Stock of the Company at $5.75 per share and a warrant
to purchase 50,000 shares of Common Stock of the Company at $5.00 per share.
Both warrants are exercisable through July 2001 and subject to certain
registration rights. Higher than expected customer attrition was primarily
attributable to the Company's inability to implement customer service and
retention program, including delays in provisioning customers, as well as
increased competition with respect to such customer base.

         In May 1996, the Company acquired all of the issued and outstanding
capital stock of Gulf Communications Services, Inc. ("Gulf") in consideration of
$25,000 in cash and the assumption of a promissory note in the principal amount
of $182,000. Such note is payable in equal monthly installments of $10,000 until
February 1, 1998. The acquired company operated switching equipment in Fort
Lauderdale, Florida, which allowed it to act as an international call back and
call through provider and also offered prepaid long distance calling cards.

Results of Operations

         The following table sets forth for the periods indicated the
percentages of total sales represented by certain items reflected in the
Company's consolidated statements of operations:

                                                      Year Ended April 30,
                                                    ------------------------
                                                       1997          1996
                                                    ----------    ----------
Sales                                                  100%           100%
Cost of Sales                                           73             73
Gross profit                                            27             27
Selling, general and administrative expense             24             23
Depreciation and amortization expense                   19              *
Unusual and non-recurring item                           2            ---
Interest expense, net                                    2              *
Earnings (losses) before income taxes                   20              3
Income taxes                                             2              1
Net income (loss)                                       18              2
---------------------
* Less than 1 percent


         Comparison of Fiscal Year Ended April 30, 1997 to Fiscal Year Ended
April 30, 1996.

         Net Loss. The Company incurred a net loss of $4,132,722, or $1.78 per
share, for the fiscal year ended April 30, 1997, as compared to net earnings of
$197,965 for the fiscal year ended April 30, 1996, or $.10 per share, primarily
as a result of the acceleration of amortization expense associated with the AIT
acquisition. Additionally, expenses recognized in connection with marketing
advances paid to telemarketers to obtain new customers also contributed to this
loss.


                                       16

<PAGE>


         Sales. The Company's sales were $23,430,846 for the fiscal year ended
April 30, 1997 compared to $12,364,643 for the fiscal year ended April 30, 1996,
an increase of $11,066,203 or 90%. The increased sales are primarily the result
of the AIT and Great Lakes acquisitions, as well as increased telemarketing
efforts.

         Cost of Sales. Cost of sales was $17,219,730 for the fiscal year ended
April 30, 1997 compared to $9,009,131 for the fiscal year ended April 30, 1996,
an increase of $8,210,599 or 91%. As a percentage of sales, cost of sales
remained constant at 73% for the fiscal year ended April 30, 1997 and the fiscal
year ended April 30, 1996. Gross margin was $6,211,116 for the fiscal year ended
April 30, 1997 compared to $3,355,512 for the fiscal year ended April 30, 1996,
an increase of $2,855,604 or 85%. As a percentage of sales, gross margin
remained constant at 27% for the fiscal year ended April 30, 1997 and the fiscal
year ended April 30, 1996.

         Selling, General and Administrative Expense. Selling, general and
administrative expenses ("SG&A") were $5,524,022 for the fiscal year ended April
30, 1997 compared to $2,835,316 for the fiscal year ended April 30, 1996, an
increase of $2,688,706 or 95%. This increase in SG&A was due primarily to
increased bad debt expense resulting from increased business, and payroll costs
resulting from the employment of additional customer service, collections and
provisioning staff to handle the increased business in connection with the
acquisitions. SG&A also included $698,830 expensed in connection with marketing
advances paid to telemarketers to obtain new customers. Of the amount, $421,030
is attributed to marketing advances paid by the Company; and $277,800 is
attributable to advances which are the subject of the Nortel/Accutel lawsuit.
(See Notes B and Q to the Notes to the Financial Statements.) Effective May
1997, the Company ceased paying marketing advances to its telemarketers. As a
percentage of sales, SG&A for the fiscal years ended April 30, 1997 and 1996
remained relatively constant at approximately 24% and 23%, respectively.

         Unusual and Non-Recurring Item. The unusual and non-recurring item
reported of $460,720 for the fiscal year ended April 30, 1997 represents costs
associated with the unauthorized usage of the Company's Direct Inward Dialing
circuits which has resulted in the Company's inability to recover long distance
service and switching charges associated with such circuits. These circuits have
been disconnected and no further unauthorized usage is possible. (See Note P to
Notes to Financial Statements.)

         Depreciation and Amortization Expense. Depreciation and amortization
expense was $4,495,609 for the fiscal year ended April 30, 1997 compared to
$133,281 for the fiscal year ended April 30, 1996, an increase of $4,362,328. As
a percentage of total sales, depreciation and amortization expense was 19% for
the fiscal year ended April 30, 1997 compared to less than 1% for the fiscal
year ended April 30, 1996. The increase in depreciation and amortization
expense, as well as the increase as a percentage of sales, was attributable to
the Company's change in the estimated rate of amortization of the AIT customer
base due to significant customer attrition experienced following the AIT
acquisition.

         Interest Expense Net. Interest expense (net) for the fiscal year ended
April 30, 1997 was $365,487 compared to $19,050 for the fiscal year ended April
30, 1996, an increase of $346,437. This increase in interest expense was
primarily a result of the incurrence of the $5,521,230 Acquisition Loan from
Tel-Save which was primarily used to complete the AIT acquisition.

         Income Taxes. No income tax was provided for in the fiscal year ended
April 30, 1997 compared to $169,900 for the fiscal year ended April 30, 1996. No
current income tax benefit was provided as the Company's loss for income tax
purposes is negligible as a result of certain amortization expenses being not
currently deductible. The Company has deferred tax assets of approximately
$1,900,000 resulting from the temporary difference between the tax and book
recognition of these expenses and other items. The Company has recorded a 70%
valuation


                                       17

<PAGE>

allowance against the deferred tax asset based on calculations which show 30% of
the asset to be realized in the next five years, and this is considered to be an
appropriate timeframe given the amount of change and consolidation taking place
in the industry, as well as the Company's limited operating history. The
Company's effective tax rate is lower than the statutory rate when the Company
has losses, and will be higher than the statutory rate if and when the Company
returns to profitability.

Liquidity and Capital Resources

         The Company's primary cash requirements have been to fund the
acquisition of customer bases and increased levels of accounts receivable which
have required substantial working capital. The Company has historically
satisfied its working capital requirements principally through cash flow from
operations and borrowings.

         On March 24, 1997, the Company commenced a public offering whereby
1,250,000 shares of its Common Stock, no par value (the "Common Stock"), and
warrants to purchase 1,437,500 shares of Common Stock (the "Redeemable
Warrants") were sold for net proceeds to the Company of approximately $3.9
million (the "Offering"). Approximately $2.5 million of the proceeds from the
Offering have been used for working capital and general business purposes,
including the repayment of certain indebtedness, as well as for marketing and
sales purposes. The Company anticipates using the balance of the proceeds from
the Offering for similar purposes.

         At April 30, 1997, the Company had a working capital deficit of
$383,991, as compared to working capital deficit of $866,640 at April 30, 1996.
The decrease in the working capital deficit was primarily attributable to an
increase in accounts receivable due to increased sales and the reduction of
outstanding debt.

         Net cash provided by operating activities was $2,648,191 for the fiscal
year ended April 30, 1997 as compared to cash provided by operating activities
of $950,158 for the fiscal year ended April 30, 1996. The increase in cash
provided by operating activities is primarily attributable to an increase in
accounts receivable, an increase in amortization of customer acquisition costs
and an increase in accounts payable. Net cash used in investing activities was
$5,458,335 for the fiscal year ended April 30, 1997, as compared to $952,398 for
the fiscal year ended April 30, 1996. The increase in cash used in investing
activities was attributable primarily to the AIT acquisition. Net cash provided
by financing activities was $4,708,923 for the fiscal year ended April 30, 1997
as compared to net cash used in financing activities for the fiscal year ended
April 30, 1996 of $42,044. The increase in cash provided by financing activities
is primarily attributable to the proceeds of the Acquisition Loan and the
proceeds from the Offering. At April 30, 1997, the Company had cash of
$1,977,546.

         Proceeds from loans totaled $6,405,335 during the year ended April 30,
1997 and $112,159 during the same period in 1996. Repayment of loans during the
years ended April 30, 1997 and 1996 totaled $5,543,947 and $132,822,
respectively.


                                       18

<PAGE>

         The Company's gross accounts receivable increased by $2,553,444 during
the fiscal year ended April 30, 1997 to $4,113,154 from $1,559,710 during the
prior period. A portion of the receivables at April 30, 1996 due from a related
party was converted into a note receivables in the amount of $182,050, of which
$32,261 was outstanding at April 30, 1997. Accounts receivable including such
note receivable, were 35% of total assets at April 30, 1997, compared to 44% of
total assets at April 30, 1996. The Company's allowance for doubtful accounts
increased by approximately $262,000, to $620,000 compared to $358,000 in the
prior period. Accounts payable increased during the fiscal year ended April 30,
1997 by $2,687,137, to $4,272,880 from $1,585,743 as compared to the fiscal year
ended April 30, 1996. Accounts payable was 42% of total liabilities and equity
at April 30, 1997 and 58% of total liabilities and equity at April 30, 1996.

         In connection with the AIT acquisition in July 1996, the Company
entered into an agreement with Tel-Save pursuant to which it borrowed an
aggregate of $5,521,230 primarily to finance the purchase price of the
acquisition. At April 30, 1997, approximately $2,033,000 was outstanding under
Acquisition Loan. The Acquisition Loan originally required the Company to repay
such loan in equal monthly installments of $500,000 through July 1997, with the
entire principal amount and interest due and payable upon the consummation of a
public offering of the Company's securities. In February 1997, the loan
agreement was amended to provide for the Company to repay the balance of the
Acquisition Loan in equal monthly installments of $125,000 together with
interest at the rate of 6.5% per annum, commencing after September 1997.
Pursuant to the amended loan agreement, the Company's services agreement with
Tel-Save was also amended to provide for an increase in the minimum volume
commitment to $3,000,000 per month beginning November 1, 1997.

         All of the Company's assets (other than equipment, machinery,
furniture and general intangibles) are pledged to Tel-Save as collateral for the
Acquisition Loan and the Company is prohibited from creating liens or security
interests in the Company's assets. Gerald M. Dunne, Jr., President and Chief
Executive Officer of the Company, has personally pledged all of the Common Stock
of the Company owned by him to the repayment of the Company's Acquisition Loan.
In connection with the Acquisition Loan and the December 1996 amendment to the
Company's loan agreement with Tel-Save, the Company issued the Tel-Save
Warrants, which include five-year warrants to purchase 300,000 shares of Common
Stock at an exercise price of $5.75 per share and five-year warrants to purchase
50,000 shares of Common Stock at an exercise price of $5.00 per share. In June
1997, these warrants were purchased by the Company from Tel-Save for $100,000.
(See Subsequent Events below and Notes N and Q to the Notes to the Financial
Statements.)

         In connection with the Great Lakes acquisition, the Company borrowed
$1,200,000 from Tel-Save. In January 1997, Tel-Save repurchased warrants from
the Company in consideration of $1,800,000 and credited the Company with such
amount ($1,200,000 to repay the loan made in January and $600,000 to repay a
portion of the Acquisition Loan).

         In May 1996, the Company entered into an agreement with Gateway
American Bank of Florida ("Gateway") pursuant to which it borrowed $50,000 of
which $27,083 was outstanding at April 30, 1997. The loan bears interest at the
prime rate plus 2% and matures on May 2, 1998. In August 1996, the Company
entered into an agreement with Gateway which, as amended as of February 1997,
provides for a line of credit of up to $150,000, bearing interest


                                       19

<PAGE>

at the prime rate plus 1% and which matures on September 5, 1997. Repayment of
the loan and the line of credit is secured by all of the Company's equipment,
machinery, furniture and general intangibles and is personally guaranteed by
Gerald M. Dunne, Jr., President and Chief Executive Officer of the Company. As
of April 30, 1997, no amount was outstanding under this line of credit.

         In September 1995, the Company issued a promissory note to John L.
Tomlinson, a director of the Company, and Phillip C. Cezeaux, an unaffiliated
third party, in the aggregate principal amount of $100,000. The interest rate on
the promissory note adjusts semi-annually based on the prime rate plus 2% and
principal and interest are payable in equal monthly installments of $2,600 until
September 1999. At April 30, 1997, $66,968 was outstanding under such note. As
an inducement for the loan, the Company issued options to Messrs. Tomlinson and
Cezeaux to purchase 47,635 of Common Stock at a price of $3.15 per share. These
options expire on September 30, 1997.

         In December 1996, the Company converted accounts payable to WorldCom
into a single promissory note in the principal amount of $1,253,798 bearing
interest at the rate of 16% per annum. The promissory note provides for the
Company to make equal monthly payments of $113,758 to WorldCom until December
20, 1997. In connection with the issuance of the notes, the Company entered into
an agreement with WorldCom which grants WorldCom a security interest in certain
assets of Company, including accounts receivable, customer lists, contractual
rights and records relating to a services agreement entered into by the company
and WorldCom in February 1994. In April 1997, the Company repaid the outstanding
balance on the note, together with all interest accrued thereon for $952,000.

         In July 1996, Global Telecom Network, Inc., a company controlled by
Gerald M. Dunne, Sr., the father of Gerald M. Dunne, Jr. President and Chief
Executive Officer of the Company, converted accounts payable to the Company into
a promissory note in the principal amount of $182,050 bearing interest at a rate
of 15% per annum. The outstanding principal amount of and accrued interest on
the note is payable monthly and matures on November 15, 1997. Gerald M. Dunne,
Sr. has pledged 50,000 shares of the Company's Common Stock owned by him to
secure repayment of such promissory note. As of April 30, 1997, the balance
outstanding on the Note was $32,261.

         The Company's accounts receivable, less allowance for doubtful
accounts, at April 30, 1997 were $3,493,154, as compared to $1,201,710 at April
30, 1996. Of the Company's accounts receivable at April 30, 1997, $377,962 were
more than 90 days outstanding. Accounts receivable averaged 56 days of sales for
the year ended April 30, 1997, as compared to 45 days for the year ended April
30, 1996 due to an increase in the number of customers which resulted in a
longer collection cycle. Increased accounts receivable days outstanding has
required the Company to use substantial working capital to finance receivables
which has materially adversely affected its liquidity and working capital
position.

         At April 30, 1997, the Company's allowance for doubtful accounts was
approximately $620,000 as compared to approximately $358,000 at April 30, 1996,
which the Company believes is currently adequate for the size and nature of its
receivables. Nevertheless, delays in collection or uncollectibility of accounts
receivable could continue to have a material adverse effect on the Company's
liquidity


                                       20

<PAGE>

and working capital position and could require the Company to continually
increase its allowance for doubtful accounts. Bad debt expense accounted for 6%
of the Company's revenues for the year ended April 30, 1997 and 3.0% for the
year ended April 30, 1996.

         The Company's capital requirements have been and will continue to be
significant. Historically, the Company has been dependent on financings to fund
its cash requirements. Based on the Company's currently proposed plans and
assumptions relating to its operations, the Company believes that the proceeds
of the Offering, together projected cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for the fiscal year
ending April 30, 1998. The Company may seek, however, additional debt or equity
financing to fund its continuing expansion through acquisitions. In the event
that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of the offering or project cash flow prove to be
insufficient to fund operations (due to unanticipated expenses, operating
difficulties or otherwise), the Company would be required to seek additional
financing earlier than anticipated or curtail its operations.

Effects of Inflation

         The Company does not believe that inflation has had a significant
impact on its operations for the fiscal year ended April 30, 1997.

                                       21

<PAGE>

Legal Proceedings

         The Company is a defendant in a civil action styled AT&T Corp. v. Group
Long Distance, Inc., Civil Action No. 97-2226 (NAP), pending in the United
States District Court for the District of New Jersey. In this action brought in
April 1997, AT&T seeks $612,324 and attorneys' fees as damages for breach of a
settlement agreement entered into between AT&T and the Company in 1993. AT&T
also seeks to recover this $612,324 under a separate claim for unpaid tariff
charges. The Company has answered the complaint and asserted certain
counterclaims. These counterclaims include claims for rescission of the
settlement agreement as well as for damages in contract, in tort and pursuant to
the Federal Communications Act. The Company plans vigorously to litigate this
matter. While the Company cannot predict with certainty the outcome of this
litigation, the Company's results of operation or cash flow in a particular
quarterly or annual period could be materially affected by protracted litigation
or an unfavorable decision. (See Note I to the Notes to Financial Statements.)

Accounting Pronouncements

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 128, Earnings Per Share ("EPS")
(SFAS 128). SFAS 128 requires public companies to present basic earnings per
share and, if applicable, diluted earnings per share, instead of primary and
fully diluted EPS. It requires entities with complex capital structures to
present basic and diluted EPS on the face of the income statement. Provisions of
SFAS 128 are effective for financial statements issued for periods ending after
December 15, 1997. The Company has made no assessment of the potential impact of
adopting SFAS 128 at this time.

Subsequent Events

         Warrant Repurchase. In connection with the financing of the AIT
acquisition, the Company issued warrants to Tel-Save to purchase 300,000 shares
of common stock of the Company at $5.75 per share and 50,000 shares at $5.00 per
share. In June 1997, these warrants were purchased by the Company from Tel-Save
for $100,000. (See Notes N and Q to the Notes to the Financial Statements).

         ETI Acquisition. On August 11, 1997, the Company acquired all the
issued and outstanding capital stock of Eastern Telecommunications Incorporated
("ETI"), a New York-based long-distance reseller. The purchase price aggregated
$8.313 million and consisted to two $3.5 million notes (the "ETI Notes") and the
assumption of $1.2 million of certain of ETI's liabilities and the payment of
closing costs in the amount of $113,000. ETI's assets consist of two warrants to
purchase 1,347,000 shares of the common stock of Tel-Save (the "ETI Tel-Save
Warrants"), a customer base of 7,000 and receivables. A substantial portion of
ETI's revenues are derived through Tel-Save. On August 11, 1997 the Company
exercised one of the ETI Tel-Save Warrants to purchase 600,000 common stock
shares of Tel-Save.

          The ETI Notes bear interest at 10% per annum payable monthly and are
due on August 11, 1998, although the net proceeds from the sale of the
securities underlying the ETI Tel-Save Warrants shall be used to prepay the
principal of the ETI Notes. Upon the event of default, interest under the ETI
Notes increases to 21% per annum until the default is cured. The ETI Notes also
provide penalty payment of $500,000 for failure to make timely payments of
principal and interest when due after giving effect to certain grace periods
should such uncured default occur prior to August 11, 1998 and $1,000,000 should
such uncured default occur on or after August 8, 1998. Events of default under
the ETI Notes include failure to make payments when due, modification or
disposition of assets pledged as collateral (described below), bankruptcy and
material misrepresentation in the ETI Notes or any related security agreement.
         
         Under the terms of the ETI stock purchase agreement (the "ETI
Agreement"), the ETI Tel-Save Warrants have been pledged to guarantee the
Company's obligations under the ETI Notes. In addition, all other assets of ETI
have been pledged as collateral and the Company has pledged a subordinated
interest in all its assets as collateral.

         The ETI Agreement also provides that the Company will indemnify the
selling shareholders from and against any and all losses arising from the
transaction and releases them from certain liabilities to ETI.

         Of the $8.313 million acquisition cost of ETI, $7.713 million has been
allocated to the ETI Tel-Save Warrants and the balance of $600,000 has been
allocated to the customer base. No value was assigned to the receivables
purchased due to the uncertainty surrounding their collectibility.



                                       22

<PAGE>

Factors That Could Affect Operating Results

         This Annual Report on Form 10-KSB contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission ("SEC") filings
and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements, due to the following factors, among
other risks and factors identified from time to time in the Company's filings
with the SEC:

o The Company's operations are based upon agreements with a limited number of
long-distance carriers who provide access to phone lines and transmission
facilities. The carriers also provide call data records, and in the case of
Tel-Save, the carrier also bills the Company's customers on the Company's
behalf. The Company is dependent upon such carriers for such services, and there
is a reasonable possibility that there could be equipment failures or other
service interruptions that could materially affect the Company. Such delays
could result in postponed or possibly lost sales, which could adversely affect
the Company's results from operations.

o The majority of the Company's revenues are derived from calls routed through
Tel-Save, a switch-based reseller. Such revenues represented 74%, 61% and 67% of
total revenues for the years ended April 30, 1997, 1996 and 1995, respectively.
Poor performance by Tel-Save or a decline in Tel-Save's economic prospects could
have material adverse affect on the Company's operating results.

o To obtain favorable rates from its carriers, the Company has committed to
purchase certain minimum volumes for long distance services during stated
periods, whether or not such volumes are used. Pursuant to its current
agreements with its carriers, the Company's volume commitments will increase
substantially during the next two years to an aggregate of approximately
$36,000,000 for the year-ended April 30, 1998 and leveling off to an aggregate
of $51,100,000 for the year ended April 30, 1999 and thereafter. Failure to
satisfy such commitments could have a material adverse effect on the Company's
operating margins and results of operations. In addition, because the Company
has commitments to purchase fixed volumes of use at predetermined rates, if
carriers were to lower the rates made available to the Company's target market
without a corresponding reduction in the Company's rates, the Company could be
materially adversely affected.

o The Company markets its services principally through independent
telemarketers, over whom the Company has no control. Poor performance by
telemarketers, or any misstatements or omissions by them could have a material
adverse affect on the Company's operating results.

o The Company has historically satisfied its working capital requirements
principally through cash flow from operations and borrowings.  The Company's
ability to obtain future financing may be limited by its existing debt level and
pre-existing liens on its assets pledged as collateral in connection with
certain borrowings.

o Increased accounts receivable days outstanding has required the Company to use
substantial working capital to finance receivables, which has materially
adversely affected its liquidity and working capital position. Delays in
collection or uncollectibility of accounts receivable could require the Company
to continually increase its allowance for doubtful accounts and could have a
material adverse impact on its results of operations.

o The Company has experienced unauthorized access to its switching services by
unauthorized usage of DID circuits which has resulted in the Company's inability
to recover the long distance service and switching charges associated with the
use of such circuits. Any unauthorized access


                                       23

<PAGE>

to the Company's services for a prolonged period of time could have a material
adverse effect on the Company's results of operations.

o The Company markets its services principally through independent 
telemarketers, over whom the Company has no control. Poor performance by 
telemarketers, or any mistatements or omissions by them could have a material 
adverse affect on the Company's operating results.

o The Company's growth prospects will be significantly affected by its ability
to achieve greater penetration in new and existing geographic areas and to
acquire additional resellers and customer bases.

o The Company is dependent on sales of long distance services to smaller
commercial customers. As a result, the Company's growth prospects will be
largely dependent upon the Company achieving greater penetration of the low
volume commercial long distance market. Achieving greater penetration in this
market will require substantial marketing efforts and expenditure of significant
funds to increase customer awareness of the cost and other advantages of the
Company's services. The Company's ability to expand its customer base will be
dependent upon the number of telemarketers it engages and their efforts, as well
as the successful integration of future acquisitions, if any, into the Company's
operations.

o The Company's operating results are significantly affected by customer
attrition rates. Customers are not obligated to purchase any minimum usage and
may discontinue service without penalty at any time. The Company typically
experiences higher customer attrition rates during the first year following the
acquisition of a customer base from other resellers.

o As the Company seeks to expand its customer base through internal growth and
potential acquisitions, the Company will be required to continually evaluate and
assess the creditworthiness of new customers. Any inability to properly assess
potential credit risks could also have a material adverse effect on the Company.

o The Company regularly evaluates possible acquisition opportunities. There can
be no assurance that the Company will ultimately effect any acquisition, that
the Company will not experience increased customer attrition as a result of any
acquisition, that the Company will be able to successfully integrate into its
operations any business or customer base which it may acquire, or that the
Company will be able to service any debt obligation in connection with any
acquisition. Any inability to do so, particularly in instances in which the
Company has made significant capital investments, would have a material adverse
effect on the Company.

o The Company's recent expansion has placed and is expected to continue to place
a strain on its management, administrative, operational, financial and other
resources. The Company's continued expansion will be largely dependent upon its
ability to maintain its operating margins, obtain competitive telecommunications
network services on a timely basis and on commercially reasonable terms, hire
and retain skilled management, marketing and other personnel and successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective management and credit controls). There can be no assurance
that the Company will be able to successfully expand its operations or manage
growth.

o The Company faces intense competition in the marketing and sale of its
services and products. Many of these services and products are marketed by
companies which are well-established and have significantly greater financial
resources than the Company. Because the reseller segment of the
telecommunications industry has no substantial barriers to entry, competition
from smaller resellers in the Company's target markets is also expected to
continue


                                       24

<PAGE>

to increase significantly. Recent regulatory changes may also result in
significantly increased competition.

o The Company is subject to federal and state regulation. Failure to comply with
applicable laws, regulations and licensing requirements could result in civil
penalties, including substantial fines, and certificates of authority may be
conditioned, modified, cancelled, terminated or revoked, any of which could have
a material adverse effect on the Company.

o Prior to a 1995 court decision, domestic non-dominant carriers were allowed by
the FCC to file tariffs with a "reasonable range of rates" instead of the
detailed schedules of individual charges required of dominant carriers. After
such court decision, which required detailed rate schedules for domestic
offerings in their tariffs, the Company and most of its competitors relied on
the FCC's past practice of allowing relaxed tariff filing requirements for
non-dominant carriers and did not maintain the required detailed rate schedules.
The Company could be held liable for damages for its failure to do so, although
it believes that such an outcome is highly unlikely and would not have an
adverse effect on it. In order to recover damages, a competing
telecommunications provider would need to demonstrate that the Company's failure
to file detailed rate schedules caused that other service provider to lose
customers and that the Company should be held liable for the damages. Management
is unable to make a meaningful estimate of the amount or range of loss that
could result from an unfavorable outcome of any potential litigation involving
this matter.

Item 7.  Financial Statements

         The consolidated financial statements of the Company are filed as part
of this Form 10-KSB are set forth on pages F-2 to F-22. The report of Grant
Thornton LLP, independent certified public accountants, dated July 21, 1997, is
set forth on page F-1 of this Form 10-KSB.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         On June 5, 1996, the Company dismissed Timothy M. Hohl Company P.A.
("Hohl"). The dismissal of Hohl was approved by the Board of Directors. The
Company believes, and has been advised by Hohl that it concurs in such belief,
that during the fiscal year ended April 30, 1995, the Company and Hohl did not
have any disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Hohl, would have caused it
to make reference in connection with its reports on the Company's financial
statements to the subject matter of the disagreement. No report of Hohl on the
Company's financial statements contained an adverse opinion or a disclaimer of
opinion, or was modified as to uncertainty, audit scope or accounting
principles. On June 5, 1996, the Company engaged Grant Thornton LLP
("Thornton"), Certified Public Accountants, as its independent auditors. The
consolidated financial statements of the Company for the years ended April 30,
1997 and 1996 were audited by Thornton.


                                    PART III

Item 9.  Directors and Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

         The information required by this item is incorporated by referenced to
the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission on or before August
28, 1997.

Item 10.  Executive Compensation

         The information required by this item is incorporated by referenced to
the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission on or before August
28, 1997.


                                       25

<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The information required by this item is incorporated by referenced to
the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission on or before August
28, 1997.

Item 12.  Certain Relationships and Related Transactions

         The information required by this item is incorporated by referenced to
the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission on or before August
28, 1997.



                                       26

<PAGE>


Item 13.  Exhibits, List and Reports on Form 8-K

        (a)  Exhibits

Exhibit         
Number     Description of Exhibits
-------    -----------------------

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

  4.1      __    Form of Representative's Warrant Agreement including Form
                 of Representative's Warrant Certificates. (Filed as an
                 Exhibit to Amendment No. 1 to the Company's Registration
                 Statement on Form SB-2 (No. 333-17681) filed March 3, 1996
                 and incorporated herein by reference.)

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

  4.3      __    Form of Common Stock Certificate.

 10.1      __    Partition Agreement between Registrant and Tel-Save, Inc.
                 dated February 3, 1993 (including Security and Assignment
                 Agreement and Lock Box Agreement). (Filed as an Exhibit to
                 Amendment No. 2 to the Company's Registration Statement on
                 Form SB-2 (No. 33-99998) and incorporated by reference
                 herein and incorporated herein by reference.)

 10.2      __    Purchase and Sale Agreement between Registrant and
                 Rockwell Communications, Inc. dated February 24, 1994.
                 (Filed as an Exhibit to the Company's Registration
                 Statement on Form SB-2 (No. 333-17681) filed December 12,
                 1996 and incorporated herein by reference.)

 10.3      __    Purchase Agreement between Registrant and ACTI, Inc. dated
                 June 1994. (Filed as an Exhibit to the Company's
                 Registration Statement on Form SB-2 (No. 333-17681) filed
                 December 12, 1996 and incorporated herein by reference.)

 10.4      __    Reseller Agreement between Registrant and Touchtone
                 Network, Inc. dated March 30, 1995. (Filed as an Exhibit
                 to the Company's report on Form 10-KSB dated August 12,
                 1996 and incorporated herein by reference.)

                                       27
<PAGE>

Exhibit         
Number     Description of Exhibits
-------    -----------------------

 10.5      __    Reseller agreement between Registrant and ARN
                 Communications Corporation dated April 13, 1995. (Filed as
                 an Exhibit to Amendment No. 1 to the Company's
                 Registration Statement on Form SB-2 (No. 33-99998) and
                 incorporated by reference herein.)

 10.6      __    Loan Agreement between Registrant and Gateway American
                 Bank of Florida dated June 7, 1996. (Filed as an Exhibit
                 to Amendment No. 1 to the Company's Registration Statement
                 on Form SB-2 (No. 33-99998) and incorporated herein by
                 reference.)

 10.7      __    Promissory Note payable to John L. Tomlinson and Philip C.
                 Cezeaux, dated September 25, 1995. (Filed as an Exhibit to
                 Amendment No. 1 to the Company's Registration Statement on
                 Form SB-2 (No. 33-99998) and incorporated herein by
                 reference.)

 10.8      __    Purchase Agreement between Registrant and Touchtone
                 Network, Inc. dated October 11, 1995. (Filed as an Exhibit
                 to the Company's Registration Statement on Form SB-2 (No.
                 333-17681) filed December 12, 1996 and incorporated herein
                 by reference.)

 10.9      __    Addendum to the Purchase Agreement between Registrant and
                 Touchtone Network, Inc. dated November 21 and 22, 1995.
                 (Filed as an Exhibit to the Company's Registration
                 Statement on Form SB-2 (No. 333-17681) filed December 12,
                 1996 and incorporated herein by reference.)

 10.10     __    Lease Agreement between Registrant and Chantilly
                 Management Corporation regarding 1555 Howell Branch Road,
                 Winter Park, Florida dated December 31, 1995. (Filed as an
                 Exhibit to the Company's Registration Statement on Form
                 SB-2 (No. 333-17681) filed December 12, 1996 and
                 incorporated herein by reference.)

 10.11     __    Commission Agreement between Registrant and Global Telecom
                 Network, Inc. regarding Target Stores, a division of
                 Dayton Hudson Corporation, dated February 1, 1996. (Filed
                 as an Exhibit to Amendment No. 1 to the Company's
                 Registration Statement on Form SB-2 (No. 33-99998) and
                 incorporated by herein reference.)

 10.12     __    Second Amendment and Renewal of Lease between Registrant
                 and Gateway Investments Corporation regarding 1451 West
                 Cypress Creek Road, Fort Lauderdale, Florida dated
                 February 5, 1996. (Filed as an Exhibit to the Company's
                 Registration Statement on Form SB-2 (No. 333-17681) filed
                 December 12, 1996 and incorporated herein by reference.)

 10.13     __    Network Services Agreement between Registrant and UUNET
                 Technologies, Inc. dated February 9, 1996. (Filed as an
                 Exhibit to Amendment No. 2 to the Company's Registration
                 Statement on Form SB-2 (No. 33-99998) and incorporated
                 herein by reference.) 

 10.14     __    Rebiller Services Agreement between Registrant and
                 WorldCom, Inc. dated February 22, 1996. (Filed as an
                 Exhibit to the Company's Registration Statement on Form
                 SB-2 (No. 333-17681) filed December 12, 1996 and
                 incorporated herein by reference.)

                                       28
<PAGE>

Exhibit         
Number     Description of Exhibits
-------    -----------------------

 10.15     __    Acknowledgement, Agreement and Release between Registrant
                 and Touchtone Network, Inc. dated March 1996. (Filed as an
                 Exhibit to the Company's Registration Statement on Form
                 SB-2 (No. 333-17681) filed December 12, 1996 and
                 incorporated herein by reference.)

 10.16     __    Switched Reseller Services Agreement between Registrant
                 and Phone One, Inc. (Intermedia Communications Inc.) dated
                 April 10, 1996. (Filed as an Exhibit to the Company's
                 Registration Statement on Form SB-2 (No. 333-17681) filed
                 December 12, 1996 and incorporated herein by reference.)

 10.17     __    Purchase Agreement between Registrant and Mr. Larry C.
                 Cornwell regarding Gulf Communications Services, Inc.
                 dated May 1, 1996. (Filed as an Exhibit to the Company's
                 Registration Statement on Form SB-2 (No. 333-17681) filed
                 December 12, 1996 and incorporated herein by reference.)

 10.18     __    Loan Agreement between Registrant and Gateway American
                 Bank of Florida dated May 2, 1996. (Filed as an Exhibit to
                 the Company's Registration Statement on Form SB-2 (No.
                 333-17681) filed December 12, 1996 and incorporated herein
                 by reference.)

 10.19     __    Promissory Note payable by Registrant to WorldCom, Inc.
                 dated June 6, 1996. (Filed as an Exhibit to the Company's
                 Registration Statement on Form SB-2 (No. 333-17681) filed
                 December 12, 1996 and incorporated herein by reference.)

 10.20     __    Purchase Agreement and Plan of Exchange between Registrant
                 and Adventures-in-TeleCom. Inc. dated July 3, 1996. (Filed
                 as an Exhibit to the Company's report on Form 10-KSB dated
                 August 12, 1996 and incorporated herein by reference.)

 10.21     __    Loan Agreement between Registrant and Tel-Save Inc. dated
                 July 11, 1996. (Filed as an Exhibit to the Company's
                 report on Form 10-KSB dated August 12, 1996 and
                 incorporated herein by reference.)

 10.22     __    Consent and Amendment between Tel-Save, Inc., and
                 Registrant dated December 2, 1996. (Filed as an Exhibit to
                 the Company's Registration Statement on Form SB-2 (No.
                 333-17681) filed December 12, 1996 and incorporated herein
                 by reference.)

 10.23     __    Consent and Amendment between Tel-Save, Inc. and the
                 Registrant dated January 31, 1997.

 10.24     __    Agreement between Tel-Save, Inc. and the Registrant, dated
                 February 28, 1997.

 10.25     __    Common Stock Purchase Warrant to purchase 50,000 Shares of
                 Common Stock granted to Tel-Save Holdings, Inc., by
                 Registrant, dated December 2, 1996. (Filed as an Exhibit
                 to the Company's Registration Statement on Form SB-2 (No.
                 333-17681) filed December 12, 1996 and incorporated herein
                 by reference.)

                                       29

<PAGE>

Exhibit         
Number     Description of Exhibits
-------    -----------------------

 10.26     __    Line of Credit Agreement between Registrant and Gateway
                 American Bank of Florida dated August 1, 1996. (Filed as
                 an Exhibit to the Company's Registration Statement on Form
                 SB-2 (No. 333-17681) filed December 12, 1996 and
                 incorporated herein by reference.)

 10.27     __    Employment Agreement of Gerald M. Dunne, Jr. with
                 Registrant. (Filed as an Exhibit to Amendment No. 2 to the
                 Company's Registration Statement on Form SB-2 (No.
                 333-17681) filed March 21, 1997 and incorporated herein by
                 reference.)

 10.28     __    1996 Stock Option Plan. (Filed as an Exhibit to Amendment
                 No. 1 to the Company's Registration Statement on Form SB-2
                 (No. 333-17681) filed March 3, 1996 and incorporated
                 herein by reference.)

 10.29     __    Amended Promissory Note payable by Registrant to WorldCom,
                 Inc. dated December 20, 1996. (Filed as an Exhibit to
                 Amendment No. 1 to the Company's Registration Statement on
                 Form SB-2 (No. 333-17681) filed March 3, 1996 and
                 incorporated herein by reference.)

 10.30     __    Stock Purchase Agreement dated as of August 11, 1997 among the
                 Registrant and the selling shareholders of Eastern 
                 Telecommunication Incorporated, together with all exhibits 
                 thereto.

 11        __    Statement re: computation of per share earnings.

 16.1      __    Letter on change in certifying accountant. (Filed as an
                 Exhibit to Amendment No. 1 to the Company's Registration
                 Statement on Form SB-2 (No. 33-99998) and incorporated
                 herein by reference.)

 21.1      __    Subsidiaries of Registrant.

 27.1      __    Financial Data Schedule.

        (b)  Reports on Form 8-K

             No reports on Form 8-K were filed for the quarter ended April 30,
1997.

                                       30

<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, on the 13th day of
August, 1997.

                                            GROUP LONG DISTANCE, INC.


                                            By: /s/ Gerald M. Dunne, Jr.
                                                ---------------------------
                                                Gerald M. Dunne, Jr.

     Pursuant to the requirements of the Securities Exchange Act of 1945, this
Report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>


                Signature                                         Title                                Date
-------------------------------------------      ----------------------------------------      ---------------------
<S>                                              <C>                                                <C>
          /s/ Gerald M. Dunne, Jr.               Chief Executive Officer                          August 13, 1997
-------------------------------------------      (Principal Executive Officer)
              Gerald M. Dunne, Jr.


          /s/ Peter J. Russo                     Chief Financial Officer                          August 13, 1997
-------------------------------------------      (Principal Financial Officer)
              Peter J. Russo


          /s/ Sam D. Hitner                      Controller                                       August 13, 1997
-------------------------------------------      (Principal Accounting Officer)
              Sam D. Hitner


                                                                                                  August 13, 1997
          /s/ Edward Harwood                     Director
-------------------------------------------
              Edward Harwood


          /s/ C. Shelton James                   Director                                         August 13, 1997
-------------------------------------------
              C. Shelton James


          /s/ Glenn S. Koach                     Director                                         August 13, 1997
-------------------------------------------
              Glenn S. Koach


          /s/ John L. Tomlinson                  Director                                         August 13, 1997
-------------------------------------------
              John L. Tomlinson
</TABLE>


                                       31

<PAGE>


                         FINANCIAL STATEMENTS AND REPORT
                            OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS

                            GROUP LONG DISTANCE, INC.
                                AND SUBSIDIARIES

                             April 30, 1997 and 1996


<PAGE>


                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



Board of Directors
Group Long Distance, Inc.

We have audited the accompanying consolidated balance sheets of Group Long
Distance, Inc. and Subsidiaries as of April 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Group Long
Distance, Inc. as of April 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.




Fort Lauderdale, Florida
July 21, 1997
(except for Note Q, as to 
  which the date is August 11, 1997)


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    April 30,

<TABLE>
<CAPTION>
                     ASSETS
                                                                        1997                1996
                                                                 ----------------    ---------------
<S>                                                              <C>                 <C>
Current assets
    Cash                                                         $      1,977,546    $        78,767
    Accounts receivable less allowance for doubtful
      accounts of $620,000 and $358,000 at April 30,
      1997 and 1996, respectively                                       3,493,154          1,201,710
    Note receivable - related party                                        32,261             96,956
    Deferred tax assets                                                   233,300            147,900
    Prepaid expenses and other current assets                             642,333             76,638
                                                                 ----------------    ---------------
                                                                        6,378,594          1,601,971
                                                                 ----------------    ---------------

Note receivable - related party, net of current portion                        --             85,094
Property and equipment, net                                               347,615             77,276
Customer acquisition costs, net                                         2,291,221            886,917
Deferred tax assets                                                       416,600                 --
Other assets                                                               37,236             89,153
                                                                 ----------------    ---------------
              Total assets                                       $      9,471,266    $     2,740,411
                                                                 ================    ===============


       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Line of credit                                               $             --    $        47,920
    Accounts payable                                                    4,272,880          1,585,743
    Accrued expenses and other liabilities                                790,739            225,137
    Current portion of long-term debt                                   1,698,966            609,811
                                                                 ----------------    ---------------
                                                                        6,762,585          2,468,611

Long-term debt, net of current portion                                  1,072,307             83,159
                                                                 ----------------    ---------------
              Total liabilities                                         7,834,892          2,551,770
                                                                 ----------------    ---------------

Stockholders' equity
Preferred stock, no par value, 2,000,000 shares
  authorized; no shares issued and outstanding                                 --                 --
Common stock, no par value, 12,000,000 shares
  authorized; 3,462,354 and 2,057,354 shares issued
  and outstanding as of  April 30, 1997 and 1996,
  respectively                                                                 --                 --
Additional paid-in capital                                              5,848,819            268,364
Accumulated deficit                                                    (4,212,445)           (79,723)
                                                                 ----------------    ---------------
              Total stockholders' equity                                1,636,374            188,641
                                                                 ----------------    ---------------
              Total liabilities and stockholders' equity         $      9,471,266    $     2,740,411
                                                                 ================    ===============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-2


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                          For the Years Ended April 30,


<TABLE>
<CAPTION>
                                                                        1997             1996
                                                                   -------------    ---------
<S>                                                                <C>              <C>          
Sales                                                              $  23,430,846    $  12,364,643
Cost of sales                                                         17,219,730        9,009,131
                                                                   -------------    -------------
               Gross profit                                            6,211,116        3,355,512

Selling, general and administrative expenses                           5,524,022        2,835,316
Unusual and non-recurring item                                           460,720               --
Depreciation and amortization                                          4,495,609          133,281
                                                                   -------------    -------------
               Earnings (loss) from operations                        (4,269,235)         386,915

Interest expense, net                                                    365,487           19,050
                                                                   -------------    -------------
               Earnings (loss) before income taxes                    (4,634,722)         367,865

Income tax expense (benefit)                                            (502,000)         169,900
                                                                   -------------    -------------
               Net earnings (loss)                                 $  (4,132,722)   $     197,965
                                                                   =============    =============
Earnings (loss) per common and common equivalent share             $       (1.78)   $         .10
                                                                   =============    =============
</TABLE>





The accompanying notes are an integral part of these statements.

                                       F-3


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

                   For the Years Ended April 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                                                    Total
                                      Shares of                            Additional                            Stockholders'
                                       Common           Common              Paid-in          Accumulated           Equity
                                        Stock            Stock              Capital            Deficit            (Deficit)
                                        -----            -----              -------            -------            ---------
<S>                                   <C>              <C>                <C>                <C>                 <C>
Balance, April 30, 1995               1,925,000        $       --         $  263,700         $  (277,688)        $  (13,988)

Exercise of options                     132,354                --            110,000                  --            110,000

Costs of registering
  shares                                     --                --           (105,336)                 --           (105,336)

Net earnings                                 --                --                 --             197,965            197,965
                                      ---------        ----------         ----------         -----------         ----------

Balance, April 30, 1996               2,057,354                --            268,364             (79,723)           188,641

Issuance of common stock
  for AIT acquisition                   155,000                --          1,085,000                  --          1,085,000

Capital contribution by
  Tel-Save                                   --                --            600,000                  --            600,000

Net proceeds of sale
  of common stock
  and warrants                        1,250,000                --          3,895,455                  --          3,895,455

Net loss                                     --                --                 --          (4,132,722)        (4,132,722)
                                      ---------        ----------         ----------         -----------         ----------
Balance, April 30, 1997               3,462,354        $       --         $5,848,819         $(4,212,445)        $1,636,374
                                      =========        ==========         ==========         ===========         ==========
</TABLE>




The accompanying notes are an integral part of this statement.

                                       F-4


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                          For the Years Ended April 30,


<TABLE>
<CAPTION>
                                                                      1997             1996
                                                                 -------------    -------------
<S>                                                              <C>              <C>
Cash flows from operating activities
     Net (loss) earnings                                         $  (4,132,722)   $     197,965
     Adjustments to reconcile net (loss) earnings to net
       cash provided by operating activities
         Depreciation and amortization                               4,495,609          133,281
         Provision for bad debts                                     1,351,992          404,480
         Changes in assets and liabilities
              (Increase) in accounts receivable                     (3,343,436)        (237,845)
              Decrease (increase) in notes receivable                  149,789         (182,050)
              (Increase) decrease in deferred tax asset               (502,000)          66,100
              (Increase) in prepaid expenses and
                other current assets                                  (440,695)         (70,394)
              Increase in accounts payable                           4,504,053          484,362
              Increase in accrued expenses and
                other liabilities                                      565,601          154,259
                                                                 -------------    -------------
                  Net cash provided by operating activities          2,648,191          950,158
                                                                 -------------    -------------

Cash flows from investing activities
     Acquisitions of property and equipment                           (185,807)         (32,249)
     Acquisitions of customer bases                                 (5,324,445)        (904,474)
     Decrease (Increase) in other assets                                51,917          (15,675)
                                                                 -------------    -------------
                  Net cash used in investing activities             (5,458,335)        (952,398)
                                                                 -------------    -------------

Cash flows from financing activities
     Net (payments) borrowings under line of credit
       agreement                                                       (47,920)          47,920
     Proceeds from loan originations                                 6,405,335          112,159
     Principal repayments of long-term debt                         (5,543,947)        (132,822)
     Proceeds from the sale of common stock and warrants             5,047,867          110,000
     Principal repayments of capital lease obligations                      --             (487)
     Offering costs incurred                                        (1,152,412)        (178,814)
                                                                 -------------    -------------
                  Net cash provided by (used in)
                    financing activities                             4,708,923          (42,044)
                                                                 -------------    -------------

Net increase (decrease) in cash                                      1,898,779          (44,284)

Cash at beginning of year                                               78,767          123,051
                                                                 -------------    -------------
Cash at end of year                                              $   1,977,546    $      78,767
                                                                 =============    =============

Noncash investing and financing activity:
     The Company acquired a customer base partially
       with common stock with a value of $1,085,000.
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-5


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             April 30, 1997 and 1996


NOTE A - FORMATION AND OPERATIONS OF THE COMPANY

    In November 1995, Group Long Distance, Inc. (the "Company") (which was
    originally incorporated in July 1990) merged into Second ITC Corporation,
    the surviving corporation, whose name was changed to Group Long Distance,
    Inc. The existing stockholders of Group Long Distance, Inc. retained 94% of
    the issued and outstanding stock of the merged company (see Note I). For
    accounting purposes, the acquisition has been treated as a recapitalization
    of Group Long Distance, Inc. with Group Long Distance, Inc. as the acquired
    company (reverse acquisition), and the financial statements of Group Long
    Distance, Inc. are considered to be the financial statements of the Company.
    Historical stockholders' equity of Group Long Distance, Inc. prior to the
    merger has been retroactively restated.

    The Company is a non-facilities based reseller of long distance
    telecommunication services. The Company utilizes service contracts to
    provide its customers with switched, dedicated and private line services to
    various long distance telecommunications networks such as Tel-Save, Worldcom
    and ICI.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    A summary of the significant accounting policies consistently applied in the
    preparation of the accompanying financial statements follows.

    Principles of Consolidation

    The financial statements at April 30, 1997 include the consolidated results
    of the Company and its wholly-owned subsidiaries. All intercompany balances
    have been eliminated in consolidation. The financial statements as of April
    30, 1996 and for the year then ended only included the operations of the
    Company without any subsidiaries.

    Cash and Cash Equivalents

    The Company considers all highly liquid investments with maturities of three
    months or less, when purchased, to be cash equivalents.

                                                                     (continued)

                                        F-6


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    Property and Equipment

    Additions and major renewals to property and equipment are recorded at cost.
    Maintenance and repairs are charged to expense when incurred. The cost and
    accumulated depreciation of assets sold or retired are removed from the
    respective accounts and any resulting gain or loss is reflected in income.
    The Company provides for depreciation using the straight-line method over an
    estimated useful life of five years for office equipment, furniture and
    fixtures and leasehold improvements. Total accumulated depreciation was
    $120,114 and $29,647 at April 30, 1997 and 1996, respectively.

    Customer Acquisition Costs

    Customer acquisition costs represent the cost of purchased customer accounts
    which are generally amortized over five years utilizing an accelerated
    method. Marketing advances paid to telemarketers to obtain customers
    acquired in the June 1996 AIT acquisition are being amortized 75% in the
    first year, 15% in the second year and 10% in the third year. The Company's
    amortization method and life are based on estimated attrition rates and
    attempt to match these costs with the corresponding revenues. Accumulated
    amortization was $4,539,744 and $134,602 at April 30, 1997 and 1996,
    respectively.

    On an ongoing basis, management reviews the valuation and amortization of
    customer acquisition costs. As part of this review, the Company reviews
    attrition rates of revenue generated by these customer bases to determine
    that no impairment has occurred.

    In December 1996, as a result of higher than expected customer attrition,
    the Company accelerated the amortization of the acquisition costs of the AIT
    customer base. This change in estimate resulted in $2,333,200 of additional
    amortization expense for the year ended April 30, 1997 based upon the new
    first year amortization rate of 75% compared to the estimated rate of 30%
    which the Company was previously using. The Company will amortize the
    remaining balance using 15% in year 2 and 10% in year 3. The higher than
    expected attrition resulted from delays in implementing the Company's
    service and retention program which relies, in part, on Tel-Save's
    installation of its new AT&T (now Lucent Technologies, Inc.) digital
    switching equipment. Additionally, increasingly competitive conditions in
    the industry have affected the attrition rate.

    Prepaid expenses and other current assets

    Certain other current assets, which are in the form of marketing advances
    paid to telemarketers to obtain new customers, are being expensed 50% in the
    year of the advance and 50% in the subsequent year. This period approximates
    the time in which the commissions earned on the new revenues equate to the
    advances paid.

    In the fourth quarter of the fiscal year ended April 30, 1997, the Company
    expensed approximately $278,000 of marketing advances that are subject to
    the Nortel/Accutel lawsuit (see Note I).

                                                                     (continued)

                                       F-7


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   
    
    Employee Benefit Plan

    The Company adopted the Group Long Distance Inc. Retirement Savings and
    401(k) Plan (the "Plan") effective January 1, 1997. Participation in the
    Plan is offered to eligible employees of the Company. Generally, all
    employees of the Company who are 21 years of age and who have completed
    three months of service are eligible for participation in the Plan. The Plan
    is a defined contribution plan which allows participants to make voluntary
    salary deferral contributions of between 1% and 15% of their compensation up
    to a maximum amount as statutorily determined. In fiscal 1997, the Company
    made matching contributions of 50% of the first 6% of the participant's
    contribution.

    Income Taxes

    Deferred income taxes have been provided for elements of income and expense
    which are recognized for financial reporting purposes in periods different
    than such items are recognized for income tax purposes. The Company accounts
    for deferred taxes utilizing the liability method, which applies the enacted
    statutory rates in effect at the balance sheet date to differences between
    the book and tax basis of assets and liabilities. The resulting deferred tax
    liabilities and assets are adjusted to reflect changes in tax laws.

    (Loss) Earnings Per Share

    (Loss) earnings per share are based upon the weighted average number of
    common and common equivalent shares outstanding during each year. The total
    number of such weighted average shares was 2,327,084 and 2,018,474 for the
    years ended April 30, 1997 and 1996, respectively. Stock options and
    warrants are considered common stock equivalents unless their inclusion
    would be antidilutive.

                                                                     (continued)

                                       F-8


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    Use of Estimates

    In preparing financial statements in conformity with generally accepted
    accounting principles, management is required to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and
    the disclosure of contingent assets and liabilities at the date of the
    financial statements and revenues and expenses during the reporting period.
    Actual results could differ from those estimates.

    Fair Value of Financial Instruments

    Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
    Value of Financial Instruments," requires disclosure of estimated fair
    values of financial instruments. These estimated fair values are to be
    disclosed whether or not they are recognized in the balance sheet, provided
    it is practical to estimate such values. The Company estimates that the fair
    value of its financial instruments approximates the carrying value of its
    financial instruments at April 30, 1997.

    Stock Options

    Options granted under the Company's Stock Option Plans are accounted for
    under APB 25, "Accounting for Stock Issued to Employees," and related
    interpretations. In October 1995, the Financial Accounting Standards Board
    issued Statement 123, "Accounting for Stock-Based Compensation," which
    require additional proforma disclosures for companies that will continue to
    account for employee stock options under the intrinsic value method
    specified in APB 25 (see Note K).

    Reclassifications

    Certain reclassifications have been made to the prior year's financial
    statements to conform with the current year presentation.


NOTE C - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING
         PRONOUNCEMENT

    In February 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards 128, Earnings Per Share (SFAS 128). SFAS
    128 requires public companies to present basic earnings per share and, if
    applicable, diluted earnings per share, instead of primary and fully diluted
    EPS. It requires entities with complex capital structures to present basic
    and diluted EPS on the face of the income statement. Provisions of SFAS 128
    are effective for financial statements issued for periods ending after
    December 15, 1997. The Company has made no assessment of the potential
    impact of adopting SFAS 128 at this time.

                                       F-9


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE D - CONCENTRATIONS OF RISK

    Financial instruments that potentially subject the Company to concentrations
    of credit risk consist of accounts and notes receivable which are due from
    small and medium size businesses. The Company continually evaluates the
    creditworthiness of its customers; however, it generally does not require
    collateral.

    The majority of the Company's revenues are derived from calls routed through
    Tel-Save, Inc.'s ("Tel-Save") network switching equipment utilizing AT&T's
    transmission facilities. Such revenues represented 74% and 61% of total
    revenues in fiscal 1997 and 1996, respectively (see Note O).

NOTE E - LINE OF CREDIT

    In August 1996, the Company entered into an agreement with a financial
    institution which, as amended as of February 1997, provides for a line of
    credit of up to $150,000, bearing interest at the prime rate plus 1% and
    which matures on September 5, 1997. The line of credit is collateralized by
    all the Company's equipment, machinery, furniture and intangibles and is
    personally guaranteed by the Company's president.

NOTE F - LONG-TERM DEBT

    Long-term debt is comprised of the following at April 30:

<TABLE>
<CAPTION>
                                                                            1997          1996
                                                                            ----          ----
<S>                                                                      <C>            <C>
        Secured Tel-Save interest bearing loan at 6.5%. The
        loan is payable in equal monthly installments of
        $125,000 plus interest beginning after September 1997.           $2,032,851     $      --

        Secured promissory note payable to a financial
        institution. The note is payable in equal monthly
        installments of $2,083 until May 2, 1998.                            27,083            --

        Unsecured promissory note payable to a Corporation in
        connection with an acquisition. The Note is payable in
        equal monthly installments of $10,000 until January 1, 1998.         83,898            --
</TABLE>

                                                                     (continued)

                                     F-10


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE F - LONG-TERM DEBT - Continued

<TABLE>
<CAPTION>
                                                                            1997          1996
                                                                            ----          ----
<S>                                                                      <C>            <C>

        Unsecured non-interest bearing settlement payable to
        AT&T. The Company has been and continues to be in
        default under this obligation and has been sued by
        AT&T (see Note I).                                               $  547,500     $  547,500

        Unsecured promissory note payable to a director of the
        Company and an unaffiliated third party. The note,
        which matures on September 25, 1999, is due in 48
        equal monthly payments of $2,600 and bears interest at
        prime plus 2% (see Note J).                                          66,968         91,428

        Unsecured non-interest bearing note payable to an
        individual. The note, which matured on April 1, 1997,
        is due in equal monthly principal payments of $1,000.                    --         11,000

        Unsecured 11% interest bearing note which is payable
        in monthly installments of $1,000 and matures in
        fiscal 1998.                                                         12,973         25,973

        18% interest bearing note payable to an individual.
        The note is collateralized by 100,000 shares of the
        Company's common stock (see Note I).                                     --         17,069
                                                                         ----------     ----------
                                                                          2,771,273        692,970

        Less current portion of long-term debt                            1,698,966        609,811
                                                                         ----------     ----------
                                                                         $1,072,307     $   83,159
                                                                         ==========     ==========
</TABLE>

    Principal maturities of long-term debt at April 30, 1997 are as follows:

                 Year Ending
                   April 30
                   --------
                     1998                $    1,698,966
                     1999                     1,059,307
                     2000                        13,000
                                         --------------
                                         $    2,771,273
                                         ==============

                                       F-11

<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE G - INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
    Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
    requires the use of the "liability method" of accounting for income taxes.
    Accordingly, deferred tax liabilities and assets are determined based on the
    difference between the financial statement and tax bases of assets and
    liabilities, using statutory federal income tax rates in effect for the
    year.

    The (benefit) provision for income taxes consists of the following at
    April 30,:

                                                1997           1996
                                           -----------    -----------
            Current                        $        --    $   103,800
            Deferred                          (502,000)        66,100
                                           ===========    ===========
                                           $  (502,000)   $   169,900
                                           ===========    ===========

    The (benefit) provision for income taxes differs from the amount of income
    tax determined by applying the applicable statutory federal income tax rates
    to pretax income as a result of the following differences at April 30, 1997
    and 1996:

<TABLE>
<CAPTION>
                                                                 1997            1996
                                                           -------------    -----------
<S>                                                        <C>              <C>
            Provision (benefit) for income taxes, at 34%   $  (1,575,800)   $   125,800
            Increase (decrease) in tax resulting from:
              Change in valuation allowance                    1,263,100         33,400
              Nondeductible items                                  3,000          7,700
              Alternative minimum tax credits                         --        (13,000)
              Effect of graduated tax rates                           --         (1,800)
              State taxes, net of federal tax benefit           (168,100)        13,700
              Other                                              (24,200)         4,100
                                                           -------------    -----------
                                                           $    (502,000)   $   169,900
                                                           =============    ===========
</TABLE>

                                                                     (continued)

                                     F-12


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE G - INCOME TAXES - Continued

    Deferred tax assets are comprised of the following at April 30, 1997 and
1996.

                                                         1997           1996
                                                    ------------    ------------

            Allowance for doubtful accounts         $    233,300    $   134,700
            Customer acquisition costs                 1,425,500         37,000
            Marketing advances                           149,700             --
            Net operating loss                           152,500             --
            Accrued bonus                                     --         13,200
                                                    ------------    -----------
              Deferred tax assets                      1,961,000        184,900
            Depreciation                                 (11,000)            --
                                                    ------------    -----------
              Net deferred tax assets                  1,950,000        184,900
            Less valuation allowance                   1,300,100         37,000
                                                    ------------    -----------
                                                    $    649,900       $147,900
                                                    ============    ===========

    The valuation allowance increased $1,263,100 in 1997. This was primarily the
    result of the difference in customer acquisition cost amortization between
    tax and financial reporting.

NOTE H - LEASES

    The Company leases two office facilities under noncancellable operating
    leases which expire at various dates through March 2000. The leases contain
    renewal options and provide for rental increases by either index or
    renegotiation. Further, some of the leases require payment of common area
    maintenance and utilities. Rent expense for the years ended April 30, 1997
    and 1996 totaled approximately $113,700 and $74,800.

    Approximate future minimum lease payments applicable to noncancellable
    operating leases are as follows:

                      Year Ending
                        April 30
                        --------
                           1998                $     108,714
                           1999                      107,729
                           2000                       93,111
                                               -------------
                                               $     309,554
                                               =============


                                     F-13


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE I - COMMITMENTS AND CONTINGENCIES

    Certain of the Company's network service agreements contain provisions for
    guaranteed monthly volume and network usage which is the basis for
    determining volume discounts and other special billing features. If the
    Company is unable to achieve the guaranteed monthly volume, the agreements
    provide for various surcharges.

    In February 1997, the Company and the Company's President and Chief
    Executive Officer entered into a two-year employment agreement providing a
    base salary of $130,000 and a bonus based on certain earnings criteria. In
    addition, he was granted options to purchase 250,000 shares of Common Stock
    at an exercise price equal to the fair market value of the Common Stock on
    the date of grant.

    The Company owes AT&T $547,500 under a previously executed settlement
    agreement relating to certain billing disputes (see Note F). The Company is
    a defendant in a civil action styled AT&T Corp. v. Group Long Distance,
    Inc., Civil Action No. 97-2226 (NAP), pending in the United States District
    Court for the District of New Jersey. In this action brought in April 1997,
    AT&T seeks $612,324 and attorneys' fees as damages for breach of a
    settlement agreement entered into between AT&T and the Company in 1993. AT&T
    also seeks to recover this $612,324 under a separate claim for unpaid tariff
    charges. The Company has answered the complaint and asserted certain
    counterclaims. These counterclaims include claims for rescission of the
    settlement agreement as well as for damages in contract, in tort and
    pursuant to the Federal Communications Act. The Company vigorously plans to
    litigate this matter. While the Company cannot predict with certainty the
    outcome of this litigation, the Company's results of operation or cash flow
    in a particular quarterly or annual period could be materially affected by
    protracted litigation or an unfavorable decision.

    In 1996, Nortel, Inc. ("Nortel") and Accutel Communications, Inc.
    ("Accutel") filed combined suits against the Company in a civil action
    styled Nortel, Inc. and Accutel Communications, Inc. v. Group Long Distance,
    Inc., No. CACE-96-014773 (07) (Broward County, Fla.), alleging causes of
    action for anticipatory breach of contract and breach of contract arising
    from the termination by the Company of service under a service contract and
    independent marketing distributor agreement with each party. The Company
    terminated the telephone services of Nortel and terminated the distributor
    relationship with Accutel for breaches of contract, including the failure to
    comply with the payment terms of their contracts. Nortel and Accutel have
    alleged that the Company anticipatorily and wrongfully terminated their
    contracts, and Accutel claims that the Company owes it $89,664 in unpaid
    commissions. Nortel sued for an injunction against the Company's termination
    of telephone services and was awarded an ex-parte temporary injunction, but
    at a hearing for dissolution of the order the Court immediately ordered the
    dissolution of the prior injunction and ordered all parties to attend
    mediation scheduled for November 1997. The Company believes it was justified
    in terminating service in accordance with the contracts and intends to
    defend vigorously its position. However, there can be no assurance to the
    outcome of this action.

                                     F-14


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


    In 1991, the Company borrowed approximately $125,000 from Mr. Harold Sutton,
    which was originally secured by 100,000 shares of the Company's Common
    Stock. At April 30, 1996, the Company owed Mr. Sutton $17,069 and Mr. Sutton
    and the Company were in a dispute over the ownership of the 100,000 shares
    originally pledged. In January 1997, the Company sought a declaratory
    judgment and judicial determination as to the amount in dispute. On April
    28, 1997, the matter was settled for $52,000 in final settlement of all
    claims against the Company.

    Pursuant to the Plan and Agreement of Merger dated November 14, 1995 (the
    "Plan"), Group Long Distance, Inc., a Florida corporation ("GLD"), was
    merged (the "Merger") into Second ITC and Second ITC changed its name to
    Group Long Distance, Inc. The Plan stated that the shareholders of GLD would
    own 94% of the outstanding shares of Second ITC and the existing
    shareholders of Second ITC would own the remaining 6% of the shares
    outstanding. Because the founders of GLD held certain founding shares (the
    "Founders' Shares") in Second ITC, there was a partial dilution of the
    interests received by the shareholders of GLD in the Merger from 94% to
    87.5% (the "Dilution"). While the Merger was approved by the Board of
    Directors and a majority of the shareholders of the Company that were
    shareholders of GLD (the predecessor) at the time of the Merger and a
    majority of the then current shareholders of the Company, shareholders
    affected by the Dilution may have a cause of action against the Company.
    There can be no assurance that a shareholder may not seek legal remedy
    against the Company or the individual founders, notwithstanding the
    foregoing approvals. In the event any such action is brought, the Company's
    results of operations or cash flow for a particular quarterly or annual
    period could be materially affected by protracted litigation or an
    unfavorable outcome.

    In connection with the foregoing matter, pursuant to an indemnification
    agreement, the Company and each of the founders, jointly and severally, have
    agreed to indemnify the underwriters to the Offering (described in Note M),
    and each of the founders has agreed to indemnify the Company, for any and
    all losses, claims, damages, expenses or liabilities (including reasonable
    legal fees and expenses) as a result of any claim arising out of or based
    upon the failure to disclose the issuance of the shares to the founders and
    in the event that as a result of any such claim, the Company is required to
    issue additional shares of Common Stock, the founders have agreed to deliver
    an equal number of shares of Common Stock to the Company for cancellation.

                                       F-15


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE J - RELATED PARTY TRANSACTIONS

    The Company has entered into an agreement with a related party which
    provides for monthly royalty payments based upon a sliding scale percentage
    of the Company's monthly net revenues. Royalties paid for the years ended
    April 30, 1997 and 1996 totaled approximately $103,700 and $111,800.

    This agreement terminated at the closing of the initial public offering of
    the Company's common stock.

    In 1997, the Company completed its public offering of the Company's common
    stock and entered into a settlement agreement with the related party to
    settle amounts owed by the Company. The agreements called for the Company to
    pay $85,450 of which $42,666 remains unpaid at April 30, 1997.

    In September 1995, as an inducement to loan the Company $100,000, the
    Company issued stock options to a director and an unaffiliated third party
    to purchase 47,635 shares of the Company's common stock at $3.15 per share.

NOTE K - STOCK OPTIONS

    The following option information has been adjusted to reflect the change
    required by the merger of Second ITC Corporation in November 1995. In
    November 1993, as an inducement to loan the Company $190,000, the Company
    issued stock options to purchase 90,505 shares of the Company's common stock
    for $1.05 per share. Options to purchase 80,978 shares of the Company's
    common stock have been exercised as of April 30, 1996. The remaining options
    expire in November 1997.

    The Company's 1996 Employees' Stock Option Plan provides for granting of
    options of not more than 600,000 shares of common stock. During 1997, the
    Company granted 526,500 options under this Plan. A Committee of the Board of
    Directors has the sole discretion to determine to whom options will be
    granted and the terms and conditions of such options.

                                                                     (continued)

                                       F-16

<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE K - STOCK OPTIONS - Continued

    Prior to April 30, 1996, the Company accounted for such options under APB
    Opinion 25 and related Interpretations. Commencing May 1, 1996, the Company
    accounts for non-qualified options issued to non-employees, under SFAS 123,
    Accounting for Stock Based Compensation.

    The exercise price of all options granted by the Company equals the market
    price at the date of grant. No compensation expense has been recognized.

    Had compensation cost for the Employees' Stock Option Plan's options issued
    to employees been determined based on the fair value of the options at the
    grant dates consistent with the method of SFAS 123, the Company's net income
    (loss) and income (loss) per share would have been changed to the pro forma
    amounts indicated below.

                                                         1997          1996
                                                     ------------   --------
            Net earnings (loss)
                As reported                          $(4,132,722)   $197,965
                Pro forma                            $(4,624,587)   $150,398

            Primary earnings (loss) per share
                As reported                          $     (1.78)   $    .10
                Pro forma                            $     (1.98)   $    .07

    The above pro forma disclosures may not be representative of the effects on
    reported net income (loss) for future years as options vest over several
    years and the Company may continue to grant options to employees.

    The fair value of each option grant is estimated on the date of grant using
    the binomial option-pricing model with the following weighted-average
    assumptions used for grants in 1997 and 1996, respectively: dividend yield
    of 0.0 percent for all years; expected volatility of 64.46 percent in both
    years; risk-free interest rate of 6.11 percent; and expected holding periods
    ranging up to 5 years.

                                                                     (continued)

                                       F-17


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE K - STOCK OPTIONS - Continued

    A summary of the status of the Company's fixed stock options as of April 30,
    1997 and 1996, and changes during the years ending on those dates is as
    follows:

<TABLE>
<CAPTION>
                                                        1997                                 1996
                                               ----------------------------     --------------------------------
                                                                Weighted-                            Weighted-
                                                                 Average                              Average
                                               Shares        Exercise Price           Shares      Exercise Price
                                               ------        --------------           ------      --------------
<S>                                            <C>               <C>                 <C>              <C> 
         Outstanding at beginning
           of year                               76,216          $2.23                 28,581         $   .70
         Granted                                526,500           5.06                 47,635            3.15
         Exercised                                   --             --                     --              --
         Expired                                     --             --                     --              --
         Forfeited                                   --             --                     --              --
                                                -------                                ------
         Outstanding at end of year             602,716           4.70                 76,216            2.23
                                                =======                                ======

         Options exercisable at end
           of year                              277,883                                76,216
         Weighted-average fair value
           of options granted during
           the year                             $  3.02                                $ 1.23
</TABLE>

    The following information applies to options outstanding at April 30, 1997.

<TABLE>
<CAPTION>
                                          Options Outstanding                               Options Exercisable
                             -----------------------------------------------          ----------------------------
                                             Weighted-
                                              Average           Weighted-                           Weighted-
           Range of                          Remaining           Average                             Average
       Exercise Prices       Shares      Contractual Life     Exercise Price          Shares      Exercise Price
       ---------------       ------      ----------------     --------------          ------      --------------
       <S>                  <C>                 <C>               <C>               <C>               <C>
       $0 - $.53             19,054             2.32              $  .53              19,054          $  .53

       $.54 - $1.05           9,527              .51                1.05               9,527            1.05

       $1.06 - $3.15         47,635              .42                3.15              47,635            3.15

       $3.16 - $5.06        526,500             4.74                5.06             201,667            5.06
</TABLE>

                                       F-18


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE L - SUPPLEMENTAL CASH FLOW INFORMATION

    Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                                                              1997               1996
                                                                       ---------------    ----------------
         <S>                                                           <C>                <C>             
         Cash paid during the year for interest                        $       114,000    $         22,000
                                                                       ===============    ================
         Cash paid during the year for taxes                           $        83,000    $          5,000
                                                                       ===============    ================
                  Property and equipment acquired
                    under capital lease obligations                    $        73,905    $         25,511
                                                                       ===============    ================
              Issuance of 155,000 shares in connection with
                acquisition of AIT (see Note N)                        $     1,085,000    $             --
                                                                       ===============    ================
</TABLE>

NOTE M - EQUITY

    The Company was authorized to issue 1,000,000 shares of preferred stock none
    of which were issued. On December 3, 1996, the Board of Directors and
    stockholders approved an increase in authorized stock to 14,000,000 shares.
    Common stock was increased from 5,000,000 to 12,000,000 shares and preferred
    stock increased from 1,000,000 to 2,000,000 shares. The rights and
    provisions of the preferred stock, if and when issued, is to be determined
    by the Board of Directors.

    In March 1997, the Company completed an underwritten public offering of its
    common stock and warrants. The Company sold 1,250,000 shares and warrants to
    purchase 1,437,500 shares at an exercise price of $5.40 per share (the
    "Redeemable Warrants"). The Company realized proceeds of $3,895,455, net of
    underwriter's discount and out of pocket expenses. In connection with the
    offering, the underwriter was granted warrants to purchase 125,000 shares of
    common stock at $4.95 per share. The underwriter also was granted the right
    to purchase 125,000 redeemable warrants at $.11 per redeemable warrant, all
    of which are exercisable at any time within the three years ending March 24,
    2000. None of the warrants issued to the underwriter have been exercised,
    and none of the redeemable warrants have been exercised.

                                       F-19


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE N - ACQUISITIONS

    In May 1996, the Company purchased, for $207,000, the stock and assets,
    including the customer base, of Gulf Communications Service, Inc. ("Gulf")
    in consideration of $25,000 in cash and the assumption of a promissory note
    in the principal amount of $182,000. Gulf has switching equipment which
    allows it to act as an international call back and call through provider.
    The promissory note of $182,000 is payable monthly in installments of
    $10,000 through February 1, 1998.

    In July 1996, the Company entered into a Purchase Agreement and Plan of
    Exchange with Adventures in Telecom, Inc. ("AIT") whereby the Company
    purchased 100% of the common stock of AIT. AIT is a non-facilities based
    reseller of long distance communication services. The purchase price was
    comprised of $5,271,230 in cash and 200,000 restricted shares of common
    stock of the Company. In December 1996, the Company agreed with the former
    shareholders of AIT to cancel 45,000 of the 50,000 shares that were subject
    to the holdback provisions, in settlement of certain claims by the Company
    against the AIT shareholders.

    The Company in July 1996, to finance the AIT acquisition, entered into an
    agreement with Tel-Save pursuant to which it borrowed an aggregate of
    $5,521,230. This loan bears interest at 6.5% per annum. The loan agreement
    was amended in February 1997 to provide for the repayment of the loan in
    monthly payments of $125,000 plus interest beginning after September 1997.
    Included in the face of the note are amounts due to the lending corporation
    at April 30, 1996 that aggregate $250,000. In 1996, the $250,000 was
    reflected in accounts payable.

    To induce Tel-Save to provide the financing needed to purchase AIT, the
    Company issued a warrant to purchase 300,000 shares of common stock of the
    Company at $5.75 per share and a warrant to purchase 50,000 shares of common
    stock of the Company at $5.00 per share. Both warrants are exercisable
    through July 2001 and subject to certain registration rights. In June 1997,
    these warrants were purchased by the Company from Tel-Save for $100,000 (See
    Note Q).

    The Company's loan agreement with Tel-Save was amended in February 1997 to
    provide for the repayment of the Acquisition Loan in monthly payments of
    $125,000 plus interest, beginning after September 1997.

                                                                     (continued)

                                       F-20


<PAGE>


                   Group Long Distance, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                             April 30, 1997 and 1996


NOTE N - ACQUISITIONS - Continued

    In January 1997, the Company purchased from Great Lakes (i) a customer base
    consisting approximately 7,000 customers that were subject to an agreement
    between Great Lakes and Tel-Save and (ii) a warrant to purchase 200,000
    shares of common stock of Tel-Save in consideration of $1,200,000 in cash.
    In connection with such acquisition, the Company borrowed $1,200,000 from
    Tel-Save. In January 1997, Tel-Save repurchased the Tel-Save Warrants from
    the Company in consideration of $1,800,000 and credited the Company with
    such amount ($1,200,000 toward the Great Lakes acquisition and $600,000
    toward the Company's outstanding principal balance under the Acquisition
    Loan). The $600,000 reduction of debt has been accounted for as a
    contribution to paid-in-capital by Tel-Save. No value has been assigned to
    the customer base acquired from Great Lakes.

NOTE O - RISKS AND UNCERTAINTIES

    The Company's operations are based upon agreements with a limited number of
    long-distance carriers who provide access to phone lines and transmission
    facilities. The carriers also provide call data records, and in the case of
    Tel-Save, the carrier also bills the Company's customers on the Company's
    behalf. The Company is dependent upon such carriers for such services, and
    there is a reasonable possibility that there could be equipment failures or
    other service interruptions that could materially affect the Company. Such
    delays could result in postponed or possibly lost sales, which could
    adversely affect operating results.

    The Company's amortization method for customer acquisition costs is based on
    management's best estimate of the period of time and amounts of revenue to
    be derived from each applicable customer base. The Company cannot predict
    customer attrition rates with absolute certainty so it is reasonably
    possible that such amortization may need to be increased in the future.

NOTE P - UNUSUAL AND NON-RECURRING ITEM

    The Company has experienced unauthorized access to its call-back switching
    services by unauthorized usage of its Direct Inward Dialing (DID) circuits.
    This unauthorized usage resulted in a charge of $460,720 to income in 1997.
    The DID circuits have been disconnected and no further unauthorized usage is
    possible. The Company has no plans to use call-back switching services in
    the future and therefore considers this charge a non-recurring event.
    Subsequent to April 30, 1997, the Company discontinued its international
    call-back switching services.


                                       F-21
<PAGE>

NOTE Q - SUBSEQUENT EVENTS

    Warrant Repurchase. In connection with the financing of the AIT acquisition,
    the Company issued warrants to Tel-Save to purchase 300,000 shares of common
    stock of the Company at $5.75 per share and 50,000 shares at $5.00 per
    share. In June 1997, these warrants were purchased by the Company from
    Tel-Save for $100,000. (see Note N).

    ETI Acquisition. On August 11, 1997, the Company acquired all the issued and
    outstanding stock of Eastern Telecommunications Incorporated ("ETI"), a New
    York-based long-distance reseller. The purchase price aggregated $8.313
    million and consisted to two $3.5 million notes (the "ETI Notes") and the
    assumption of $1.2 million of certain of ETI's liabilities and the payment
    of closing costs in the amount of $113,000. ETI's assets consist of two
    warrants to purchase 1,347,000 shares of the common stock of Tel-Save (the
    "ETI Tel-Save Warrants"), a customer base of 7,000 and receivables. A
    substantial portion of ETI's revenues are derived through Tel-Save. On
    August 11, 1997 the Company exercised one of the ETI Tel-Save Warrants to
    purchase 600,000 common stock shares of Tel-Save.

    The ETI Notes bear interest at 10% per annum payable monthly and are due on
    August 11, 1998, although the net proceeds from the sale of the securities
    underlying the ETI Tel-Save Warrants shall be used to prepay the principal
    of the ETI Notes. Upon the event of default, interest under the ETI Notes
    increases to 21% per annum until the default is cured. The ETI Notes also
    provide penalty payment of $500,000 for failure to make timely payments of
    principal and interest when due after giving effect to certain grace periods
    should such uncured default occur prior to August 11, 1998 and $1,000,000
    should such unncured default occur on or after August 8, 1998. Events of
    default under the ETI Notes include failure to make payments when due,
    modification or disposition of assets pledged as collateral (described
    below), bankruptcy and material misrepresentation in the ETI Notes or any
    related security agreement.

    Under the terms of the ETI stock purchase agreement (the "ETI Agreement"),
    the ETI Tel-Save Warrants have been pledged to guarantee the Company's
    obligations under the ETI Notes. In addition, all other assets of ETI have
    been pledged as collateral and the Company has pledged a subordinated
    interest in all its assets as collateral.

    The ETI Agreement also provides that the Company will indemnify the selling
    shareholders from and against any and all losses arising from the
    transaction and releases them from certain liabilities to ETI.

    Of the $8.313 million acquisition cost of ETI, $7.713 million has been
    allocated to the ETI Tel-Save Warrants and the balance of $600,000 has been
    allocated to the customer base. No value was assigned to the receivables
    purchased due to the uncertainty surrounding their collectibility.

                                       F-22


<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit                                                                                           Sequential
Number   Description of Exhibits                                                                   Page No.
-------  ------------------------------------------------------------------------------------     ----------
<S>      <C>                                                                                       <C>
4.3      Form of Common Stock Certificate                                                            4.3-1

10.23    Consent and Amendment between Tel-Save, Inc. and the Registrant dated January 31, 1997      10.23-1

10.24    Agreement between Tel-Save, Inc. and the Registrant, dated February 28, 1997                10.24-1

10.30    Stock Purchase Agreement dated as of August 11, 1997 among the Registrant and the
         selling shareholders of Eastern Telecommunications Incorporated, together with all
         exhibits thereto                                                                            10.30-1

11.1     Statement re computation of per share earnings                                              11.1-1

21.1     Subsidiaries of the Registrant                                                              21.1-1

27.1     Financial Data Schedule                                                                     27.1-1

</TABLE>