<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period under ending March 30, 1996
Commission File Number 33-26019-LA
Long Distance Direct Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 33-0323376
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1 Blue Hill Plaza, Pearl River, NY 10956
-----------------------------------------
Issuer's telephone number: 914-620-0765
________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common equity, as of May 31,
1996 is 3,862,887.
Transitional small business disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
31-Mar
------
1996 December 31,
---- ------------
ASSETS (unaudited) 1995
------ ----------- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 85,209 $ 207,666
Accounts receivable (net of allowance for
doubtful accounts of $211,427 and $163,149,respectively) 1,709,076 1,103,903
Other current assets 127,227 93,229
Loans receivable-officers 46,423 0
--------------- --------------
Total Current Assets 1,967,935 1,404,798
--------------- --------------
PROPERTY AND EQUIPMENT
Furniture and equipment 56,207 54,856
Computer equipment and software 210,964 196,764
Leasehold improvements 38,720 38,720
--------------- --------------
305,891 290,340
Less: accumulated depreciation 144,283 129,203
--------------- --------------
161,608 161,137
--------------- --------------
OTHER ASSETS 82,293 61,790
--------------- --------------
2,211,836 1,627,725
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Notes payable - current 1,245,199 1,165,000
Accounts payable 3,058,217 2,370,081
Accrued expenses 653,337 577,576
Sales and excise taxes payable 558,453 703,143
Loans payable - officers - 74,244
--------------- --------------
Total Current Liabilities 5,515,206 4,890,044
--------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIT
Common stock - par value $.001 per share;
authorized 30,000,000 shares; issued
and outstanding 3,839,835 shares 3,840 3,798
Additional paid in capital 1,555,392 1,429,434
Accumulated deficit (4,862,602) (4,665,551)
--------------- --------------
Less: Subscriptions receivable 0 (30,000)
--------------- --------------
Total Stockholders' Deficit (3,303,370) (3,262,319)
--------------- --------------
2,211,836 1,627,725
=============== ==============
</TABLE>
1
<PAGE> 3
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
31-Mar-96 31-Mar-95
---------- ----------
<S> <C> <C>
REVENUES $1,798,093 $2,597,117
CUSTOMER REBATES AND REFUNDS 3,784 90,069
----------- ----------
NET REVENUES 1,794,309 2,507,048
COST OF SERVICES 1,115,081 1,843,800
---------- ----------
Gross Profit 679,228 663,248
---------- ----------
OPERATING EXPENSES
Sales and marketing 158,151 447,054
General and administrative 687,472 642,739
---------- ----------
Total Operating Expenses 845,623 1,089,793
---------- ----------
LOSS FROM OPERATIONS (166,395) (426,545)
OTHER EXPENSES (INCOME)
Interest expense 31,688 69,769
Interest income (1,032) (914)
Initial public offering costs - 309,068
---------- ----------
Total Other Expenses (Income) 30,656 377,923
---------- ----------
NET LOSS ($197,051) ($804,468)
========== ==========
NET LOSS PER SHARE (.05) (.21)
========== ==========
</TABLE>
2
<PAGE> 4
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
31-Mar-96 31-Mar-95
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($197,051) ($804,468)
--------- ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 15,080 13,135
Amortization of note discount 0 57,000
Financing expenses 0 0
Provision for doubtful accounts 63,013 93,270
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (653,451) 93,912
(Increase) decrease in other current assets (33,998) 227,609
(Increase) decrease in other assets (20,503) 263,216
Increase in accounts payable 688,136 459,064
Increase (decrease) in accrued expenses 61,026 (65,469)
Increase (decrease) in sales and excise taxes payable (144,690) 146,609
--------- ---------
Total Adjustments to Net Loss (25,387) 1,288,346
--------- ---------
Net Cash Used in Operating Activities (222,438) 483,878
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (15,551) (20,852)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) of notes payable 80,199 (33,469)
Proceeds (payment) of related party loans (120,667) (16,364)
Proceeds from private placement 156,000 0
Payment of private placement costs 0 0
- -
Net Cash Provided by Financing Activities 115,532 (49,833)
--------- ---------
NET INCREASE (DECREASE) IN CASH (122,457) 413,193
CASH- Beginning of Period 207,666 52,015
--------- ---------
CASH - End of Period $85,209 $465,208
========= =========
</TABLE>
3
<PAGE> 5
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Company's position as
of March 31, 1996 and December 31, 1995 and results of its operations and cash
flows for the three-month periods ending March 31, 1996 and March 31, 1995.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's financial statements in the Form 10-KSB for the period ending
December 31, 1995.
4
<PAGE> 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the Financial Statements and the notes thereto appearing herein. This
report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this discussion and analysis and elsewhere in this
report.
The following discussion and analysis relates to the financial
condition and results of operations of the Company for the two years ended
March 31, 1996. The Company has sustained losses for each of the two years due
to the lack of working capital to finance adequate levels of marketing
expenditure. The Company effected a restructuring in order to be able to
improve its liquidity and finance its future expansion by a subsequent offering
of shares of its common stock. Prior and subsequent to December 31, 1995, the
Company raised $1,819,500 from the sale of its Common Stock in a private
placement. Part of the proceeds were paid to the Company in cash and the
balance of proceeds were used to reduce the amount of certain loans to the
Company. The Company is currently seeking to raise up to an additional $2.475
million in a further private placement of its Common Stock.
Management will use the proceeds from the current offering to improve
the financial condition of the Company and provide increased working capital.
Marketing activities will be pursued more aggressively to increase the
Company's customer base. The Company has thus far used independent sales
representatives, sub-contracted telemarketers, and direct mail to solicit
customers. The Company now intends to establish its own in-house telemarketing
facility, to launch a televised marketing program during 1996 to increase its
independent sales force, and to increase its direct mail activity. The Company
believes that the proceeds of the current offering, if successful, together
with cash flow generated from operations, will be sufficient to meet its
anticipated working capital needs for the foreseeable future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Gross revenues for the three months ended March 31, 1996 were
$1,798,093 as compared to $2,597,117 for the three months ended March 31,
1995. The decrease of 30% is attributable partially to the Company's inability
to finance adequate levels of marketing expenditure to offset customer
attrition and partially to the inability of MCI to provide service under its
contract with the Company until April, 1996. As at March 31, 1996, the Company
had significant levels of orders for service on the MCI network that were
unable to be provisioned because of an inability of MCI to provide service. In
addition, in October 1995, the Company lost its largest customer, L.C. Wegard &
Company, which had generated gross revenue of approximately $150,000 per month,
as a result of such customer's bankruptcy.
During the second half of 1996, the Company anticipates taking steps
to increase its customer base and, consequently, its revenues and market share
as follows:
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Management plans to resume the active pursuit of new customers upon
receipt of the proceeds of its current private placement, if successful, and
thus increase its revenues. The Company intends to increase expenditures on
sub-contracted telemarketing and direct mail activities as well as establish its
own in-house telemarketing facility and launch a televised marketing program to
increase its independent sales force.
In the first quarter of 1996, Congress passed legislation allowing the
entry of long-distance carriers into the local market and local carriers into
the long distance market to foster greater competition within the telephone
industry. While this may lead to increased competition for the Company in the
long distance market from local carriers, management plans to enter into the
local market in order to increase its overall market share.
The Company will also enter the residential market in 1996. The
Company has signed an agreement which allows the "LECs" (Local Exchange
Carriers) to bill and collect on behalf of the Company. Previously, the Company
has sold exclusively to commercial customers.
Management believes that the Company's systems are capable of
supporting the anticipated growth in the Company's revenues. The systems were
further upgraded in 1995 to provide quicker response times for the customer
service and collections functions.
Gross profit was $679,228 and $663,248 for the three months ended
March, 1996 and 1995, respectively. The gross profit margins for the three
months ended March 31, 1996 and 1995 were 38% and 26%, respectively. The
percentage increase is partially due to more favorable pricing experienced by
the Company under its new contract with AT&T signed in September of 1995 and
partially to the loss of the Company's largest customer, L.C. Wegard and
Company, in October, 1995. The Company had granted promotional rebates to this
customer resulting in slimmer profit margins in 1995.
For the period September 1994 through August, 1995, the Company
operated under an individually negotiated contract tariff with AT&T for
outbound long distance service. This contract had a three year term and
required the purchase of $1,200,000 per quarter of SDN (Software Defined
Network) and DNS (Distributed Network Service) usage. The Company received
volume discounts based on its level of usage. The new contract signed on
September 1, 1995 - which supersedes all previous contracts with AT&T -
encompasses both outbound and inbound service and is set at a fixed term of four
years with a one-year extension. The Company continues to have a minimum SDN
and DNS purchase requirement of $1,200,000 per quarter for 16 quarters or 20
quarters if the Company extends its contract.
The Company has advised AT&T that it may have been significantly
over-billed by AT&T since September, 1992. At this time, however, no estimate
can be made as to the time or the amount, if any, of any recovery by the
Company. Accordingly, no provision for recovery has been reflected in the
Company's financial statements.
On March 1, 1996 the Company signed an individually negotiated
agreement with MCI under which the Company is authorized to resell various MCI
services, including outbound long-distance and local long distance, inbound
long-distance, calling cards, debit cards, teleconferencing and MCI enhanced
services. The agreement is subject to a twelve month ramp period followed by a
thirty month service period
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<PAGE> 8
and supersedes a prior agreement signed August 1995 under which MCI was unable
to provide service as a result of software problems between MCI and the LECs.
During the first five months of the ramp period, the Company has no
minimum purchase obligations. During the sixth, seventh, and eighth months,
the Company is obliged to purchase $250,000 of services per month, during the
ninth and tenth month $500,000 per month, during the eleventh and twelfth month
$750,000 per month, and during the thirty month service period $1,000,000 per
month. In the event that the Company fails to meet its minimum purchase
requirements, it must pay MCI 15% of the difference between the amount used and
the respective minimum monthly requirement.
The agreement is subject to increases and decreases in the rate of
discount offered to the Company, depending on the proportion of "new business"
(currently non-MCI business) in the Company's total usage. During the first
six months of the agreement either the Company or MCI may terminate the
agreement at will, with no penalty. In the event that no notice of termination
is received within six months, the agreement is to run for the full forty-two
(42) month term.
As at 3/31/96, the Company had significant levels of orders for
service on the MCI network that were unable to be provisioned because of the
inability of MCI to provide service. Subsequent to 3/31/96, MCI commenced
providing service but the benefit of this is not expected to be reflected in
the Company's revenues until the third quarter of 1996. In consideration of
its inability to provide service under the August, 1995 contract prior to
December 31, 1995, MCI agreed to compensate the Company in the form of a
service credit in an amount not to exceed $1,000,000, to be applied against its
initial usage under the March, 1996 contract.
Sales and marketing expenses were $158,151 and $447,054 for the three
months ended March 31, 1996 and 1995 respectively. As a percentage of gross
sales, sales and marketing expenses fell from 17 % for the three months ended
March 31, 1995 to 9% for the three months ended March 31, 1996. Both the
dollar and percentage decrease are attributable to cash constraints experienced
by the Company during the year. Also contributing to the reduction in sales
and marketing expense is the increased efficiency of the Company's management
in controlling new account acquisition costs and monitoring the performance of
accounts acquired through outbound telemarketing firms. Management plans to
resume its acquisition of accounts upon receipt of funding from its current
private placement, if successful. The Company also intends to establish its own
in-house telemarketing facility, to launch a televised marketing program during
1996 to increase its independent sales force and to increase its direct mail
activity.
General and administrative expenses were $687,472 and $642,739 for the
three months ended March 31, 1996, and 1995 respectively. As a percentage of
gross sales, general and administrative expenses for the three months ended
March 31, 1996 and 1995 were 38% and 25% respectively. The principal elements
which contributed to the increase in general and administrative expenses were
costs relating to attempts in 1996 to raise capital for the Company and
increased costs relating to the maintenance and upgrading of the Company's
internal systems in anticipation of increased levels of sales activity.
Interest expense for the three months ended March 31, 1996 and 1995
was $31,688 and $69,769 respectively. For the period ending 3/31/95, interest
expense related to accrued interest on indebtedness of the Company in
connection with a note incurred in relation to the purchase of the partnership
interest of two of the original limited partners in LDDLP, and various
financing agreements entered into in 1994 to finance the Company's working
capital requirements. A majority of the Company's outstanding loans were
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<PAGE> 9
converted to equity under the first private placement which contributed to the
decrease in interest expense for the period ending 3/31/96.
The Company incurred a net loss of $197,051 for the three months
ended March 1996 compared to a net loss of $804,468 for the three months ended
March 31, 1995. For the period ending March 31, 1995, costs of $309,068 were
written off in connection with an initial public offering which had been
planned for the beginning of 1995 but which did not take place. These amounts
had been largely incurred during 1994 but not expensed during that year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had negative working capital of
$3,547,271 compared to negative working capital of $2,685,801 at March 31,
1995. The Company experienced cash constraints throughout 1995 as a result of
the abandonment of its plans to effect an initial public offering. The Company
has not experienced the growth in revenues and profits that it had anticipated
at the beginning of 1995. Due to cash constraints, management has been unable
to undertake an active pursuit of new accounts from outbound telemarketing
firms or from direct mail, as a result of which revenues progressively declined
through customer attrition.
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<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated June 25, 1996 Long Distance Direct Holdings, Inc.
By: /s/ Steven Lampert
------------------------------
Steven Lampert, President
(Principal Executive Officer),
and Director
By: /s/ Michael Preston
------------------------------
Michael Preston, Chief
Financial Officer (Principal
Accounting Officer) and
Director
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Long Distance Direct Holdings, Inc.
EXHIBIT INDEX TO FORM 10-QSB
FOR QUARTER ENDED MARCH 30, 1996
EXHIBIT NO. DESCRIPTION
1 Financial Data Schedule (filed only with
electronic copy)
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LONG
DISTANCE DIRECT HOLDINGS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
LONG DISTANCE DIRECT HOLDINGS, INC. 10QSB.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 85,209
<SECURITIES> 0
<RECEIVABLES> 1,920,503
<ALLOWANCES> 211,427
<INVENTORY> 0
<CURRENT-ASSETS> 1,967,935
<PP&E> 305,891
<DEPRECIATION> 144,283
<TOTAL-ASSETS> 2,211,836
<CURRENT-LIABILITIES> 5,515,206
<BONDS> 0
0
0
<COMMON> 3,840
<OTHER-SE> (3,307,210)
<TOTAL-LIABILITY-AND-EQUITY> 2,211,836
<SALES> 1,794,309
<TOTAL-REVENUES> 1,794,309
<CGS> 1,115,081
<TOTAL-COSTS> 158,151
<OTHER-EXPENSES> 624,459
<LOSS-PROVISION> 63,013
<INTEREST-EXPENSE> 30,656
<INCOME-PRETAX> (197,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> (197,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,051)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
11
</TABLE>
