<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 ending June 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 10965
-----------------------------------------
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 June 30,
1996 is 4,140,199.
Transitional small business disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-June
----------------
1996 December 31,
---------------- ----------------
ASSETS (unaudited) 1995
- ------ ---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash $812,822 $207,666
Accounts receivable (net of allowance for
doubtful accounts of $256,356
and $163,149, respectively) 1,832,407 1,103,903
Other current assets 327,567 93,229
---------- ----------
Total Current Assets 2,972,796 1,404,798
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and equipment 56,865 54,856
Computer equipment and software 230,770 196,764
Leasehold improvements 38,720 38,720
---------- ----------
326,355 290,340
Less: accumulated depreciation (160,472) (129,203)
---------- ----------
165,883 161,137
---------- ----------
OTHER ASSETS 207,497 61,790
---------- ----------
$3,346,176 $1,627,725
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Notes payable - current 1,495,200 1,165,000
Accounts payable 3,168,300 2,370,081
Accrued expenses 398,505 577,576
Sales and excise taxes payable 530,465 703,143
Loans payable - officers 309,734 74,244
---------- ----------
Total Current Liabilities 5,902,204 4,890,044
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIT
Common stock - par value $.001 per share;
authorized 30,000,000 shares; issued
and outstanding 4,140,199 shares 4,140 3,798
Additional paid in capital 2,546,293 1,429,434
Accumulated deficit (5,106,461) (4,665,551)
---------- ----------
Less: Subscriptions receivable 0 (30,000)
---------- ----------
Total Stockholders' Deficit (2,556,028) (3,262,319)
---------- ----------
$3,346,176 $1,627,725
========== ==========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 3
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS YEAR TO DATE THREE MONTHS YEAR TO DATE
------------- ------------ ------------- ------------
ENDED 6/30/96 6/30/96 ENDED 6/30/95 6/30/95
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES $1,665,409 $3,463,502 $2,289,416 $4,886,533
CUSTOMER REBATES AND REFUNDS 3,805 7,589 129,473 219,542
------------- ------------ ------------- ------------
NET REVENUES 1,661,604 3,455,913 2,159,943 4,666,991
COST OF SERVICES 1,024,728 2,139,809 1,648,793 3,492,593
------------- ------------ ------------- ------------
Gross Profit 636,876 1,316,104 511,150 1,174,398
------------- ------------ ------------- ------------
OPERATING EXPENSES
Sales and marketing 158,022 316,173 36,199 483,253
General and administrative 689,642 1,377,114 660,080 1,302,819
------------- ------------ ------------- ------------
Total Operating Expenses 847,664 1,693,287 696,279 1,786,072
------------- ------------ ------------- ------------
LOSS FROM OPERATIONS (210,788) (377,183) (185,129) (611,674)
OTHER EXPENSES (INCOME)
Interest expense 33,651 65,339 91,690 161,459
Interest income (580) (1,612) (2,024) (2,938)
Initial public offering costs - - 68,517 377,585
------------- ------------ ------------- ------------
Total Other Expenses (Income) 33,071 63,727 158,183 536,106
------------- ------------ ------------- ------------
NET LOSS ($243,859) ($440,910) ($343,312) ($1,147,780)
============= ============ ============= ===========
NET LOSS PER SHARE (.06) (.11) - -
</TABLE>
<PAGE> 4
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
30-June-96 30-June-95
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($440,910) ($1,147,780)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 31,269 27,016
Amortization of note discount --- 92,000
Imputed interest on personal guarantee --- ---
Financing expenses --- ---
Provision for doubtful accounts 126,417 176,169
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (821,711) 196,092
(Increase) decrease in other current assets (234,338) 231,167
(Increase) decrease in other assets (145,707) 192,504
Increase in accounts payable 798,219 21,734
Increase (decrease) in accrued expenses (212,281) (51,852)
Increase (decrease) in sales and excise taxes payable (172,678) 179,144
--------------------------
Total Adjustments to Net Loss (630,810) 1,063,974
--------------------------
Net Cash Used in Operating Activities (1,071,720) (83,806)
--------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (36,015) (27,386)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) of notes payable 330,200 (155,269)
Proceeds (payment) of related party loans 235,490 (50,804)
Proceeds from private placement 1,147,201 ---
Payment of private placement costs --- ---
--------------------------
Net Cash Provided by Financing Activities 1,712,891 (206,073)
--------------------------
NET INCREASE (DECREASE) IN CASH 605,156 (317,265)
--------------------------
CASH - Beginning of Period 207,666 52,015
CASH - End of Period $812,822 ($265,250)
</TABLE>
<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 June 30, 1996 and December 31, 1995 and results of its operations and cash
flows for the six-month periods ending June 30, 1996 and June 30, 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.
<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 June 30, 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. Under its first private placement in the last quarter of 1995,
the Company raised $1,819,500 from the sale of its Common Stock. 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 made another
offering of its common stock under a second private placement in March of 1996.
As of 6/30/96, the Company has raised $991,200 and plans to raise a maximum of
$2.475 million under this offering. In addition, the Company is preparing to
attempt to raise up to an additional $6,500,000 in a further private placement
of its Common Stock.
Management will use the proceeds from the current and future offerings 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 the third quarter of
1996 to increase its independent sales force, and to increase its direct mail
activity. The Company believes that the proceeds of the current and subsequent
offerings 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 JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Gross revenues for the three months ended June 30, 1996 were $1,665,409 as
compared to $2,289,416 for the three months ended June 30, 1995. The decrease
of 27% is attributable to the Company's inability to finance adequate levels
of marketing expenditure to offset customer attrition and to the loss, in
October 1995, of 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.
<PAGE> 7
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:
Management plans to resume the active pursuit of new customers upon
receipt of the proceeds of its current and future private placements, 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 $636,876 and $511,150 for the three months ended June,
1996 and 1995, respectively. As a percentage of net sales,the gross profit
margins for the three months ended June 30, 1996 and 1995 were 38 % and 24 %,
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.
<PAGE> 8
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 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.
Prior to 3/31/96, MCI had been unable to provision the Company's customers.
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 $158,022 and $36,199 for the three
months ended June 30, 1996 and 1995 respectively. As a percentage of gross
sales, sales and marketing expenses increased from 2% for the three months
ended June 30, 1995 to 9% for the three months ended June 30, 1996. The
percentage increase is attributable partially to lower sales in the second
quarter of 1996 and partially to one-time adjustments made at 6/30/95 as
follows: The company wrote off amounts due one of its telemarketers of $73,211
after it ceased doing business with this telemarketer . The company also wrote
off $50,000 of commission payable to its independent sales agents who are no
longer active.
<PAGE> 9
Management plans to resume its acquisition of accounts upon receipt of funding
from its current and future private placements, 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 $689,642 and $660,080 for the
three months ended June 30, 1996, and 1995 respectively. As a percentage of
gross sales, general and administrative expenses for the three months ended
June 30, 1996 and 1995 were 41 % and 29% 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. The
percentage increase is also attributable to lower sales levels in the second
quarter of 1996.
Interest expense for the three months ended June 30, 1996 and 1995 was
$33,651 and $91,690 respectively. For the quarter ending 6/30/95, 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
converted to equity under the first private placement which contributed to the
decrease in interest expense for the quarter ending 6/30/96.
The Company incurred a net loss of $243,859 for the three months ended
June 30, 1996 compared to a net loss of $343,312 for the three months ended June
30, 1995. For the quarter ending June 30, 1995, costs of $68,517 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.
SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED JUNE 30, 1995
Gross revenues for the six months ended June 30, 1996 were $3,463,502 as
compared to $4,886,533 for the six months ended June 30, 1995. The decrease
of 29% is attributable to the Company's inability to finance adequate levels of
marketing expenditure to offset customer attrition and to the loss, in October
1995 of 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.
Gross profit was $1,316,104 and $1,174,398 for the six months ended June
30, 1996 and 1995, respectively. As a percentage of net sales, the gross profit
margins for the six months ended June 30, 1996
<PAGE> 10
and 1995 were 38% and 25%, 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.
Sales and marketing expenses were $316,173 and $483,253 for the six months
ended June 30, 1996 and 1995 respectively. As a percentage of gross sales, sales
and marketing expenses were 9% and 10% for the six months ended June 30, 1996
and June 30, 1995, respectively. At 6/30/95, the company wrote off amounts due
one of its telemarketers of $73,211 after it ceased doing business with this
telemarketer. The company also wrote off $50,000 of commission payable to its
independent sales agents who are no longer active. Management plans to resume
its acquisition of accounts upon receipt of funding from its current and future
private placements, 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 $1,377,114 and $1,302,819 for the
six months ended June 30, 1996, and 1995 respectively. As a percentage of
gross sales, general and administrative expenses for the six months ended June
30, 1996 and 1995 were 40 % and 27% 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. The percentage
increase is also attributable to lower sales levels in the second quarter of
1996.
Interest expense for the six months ended June 30, 1996 and 1995 was
$65,339 and $161,459 respectively. For the six months ending 6/30/95, 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
converted to equity under the first private placement which contributed to the
decrease in interest expense for the six months ending 6/30/96.
The Company incurred a net loss of $440,910 for the six months ended
June 30, 1996 compared to a net loss of $1,147,780 for the six months ended June
30, 1995. This increase is attributable to the following factors: For the six
months ending June 30, 1995, costs of $377,585 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. Interest expense decreased
$96,120 since a majority of the Company's outstanding loans were converted to
equity at 12/31/95 under the first private placement. Customer rebates and
refunds decreased
<PAGE> 11
$211,953 due 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 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had negative working capital of $2,929,408
compared to negative working capital of $3,064,157 at June 30, 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.
<PAGE> 12
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: August 14, 1996 Long Distance Direct Holdings, Inc.
By: STEVEN LAMPERT
------------------------------
Steven Lampert, President
(Principal Executive Officer),
and Director
By: MICHAEL PRESTON
------------------------------
Michael Preston, Chief
Financial Officer (Principal
Accounting Officer) and
Director
<PAGE> 13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROFIT AND
LOSS STATEMENT AND BALANCE SHEET OF LONG DISTANCE DIRECT HOLDINGS, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH LONG DISTANCE DIRECT HOLDINGS,
INC. FORM 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 812,822
<SECURITIES> 0
<RECEIVABLES> 2,088,763
<ALLOWANCES> 256,356
<INVENTORY> 0
<CURRENT-ASSETS> 2,972,796
<PP&E> 326,355
<DEPRECIATION> 160,472
<TOTAL-ASSETS> 3,346,176
<CURRENT-LIABILITIES> 5,902,204
<BONDS> 0
0
0
<COMMON> 4,140
<OTHER-SE> (2,560,168)
<TOTAL-LIABILITY-AND-EQUITY> 3,346,176
<SALES> 3,455,913
<TOTAL-REVENUES> 3,455,913
<CGS> 2,139,809
<TOTAL-COSTS> 316,173
<OTHER-EXPENSES> 1,250,697
<LOSS-PROVISION> 126,417
<INTEREST-EXPENSE> 65,339
<INCOME-PRETAX> (440,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (440,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440,910)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
