LONG DISTANCE DIRECT HOLDINGS INC, 10KSB40, 1997-04-02

LONG DISTANCE DIRECT HOLDINGS INC
10KSB40, 1997-04-02
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<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934. For the fiscal year ended December 31, 1996.

/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the transition period from __________ to __________.

Commission File No. 33-26019-LA

LONG DISTANCE DIRECT HOLDINGS, INC.
(Name of small business issuer 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, New York 10965
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code: (914) 620-0765

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange 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 the past 90 days. Yes __X__ No_____

Check if 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 issuer'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. /X/

The issuer had revenues of $5,319,923 for the fiscal year ended December 31,
1996.

The aggregate market value of the voting stock held by non-affiliates of the
issuer, based on the average of the closing bid and asked prices of the issuer's
Common Stock in the over-the-counter market as reported by the OTC Bulletin
Board on March 24, 1997, was approximately $13,242,000.

As of March 17, 1997, 7,027,949 shares of Common Stock, $.001 par value, were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

<PAGE> 2
PART I

ITEM 1. Description of Business.

Long Distance Direct Holdings, Inc., which was formerly known as Golden
Ark Inc., was inactive until October 6, 1995, when it acquired all of the
outstanding stock of Long Distance Direct, Inc. ("LDDI") and LDDI became a
wholly owned subsidiary of the Company. LDDI is a New York corporation which was
formed in 1991 for the purpose of acting as the general partner of Long Distance
Direct L.P. ("LDDLP" or the "Partnership"), a New York limited partnership
formed at the same time for the purpose of carrying on the business of a
non-facilities-based reseller of long-distance telephone service.

In October 1995, LDDI acquired all of the partnership interests of
LDDLP in exchange for shares of LDDI common stock. After its acquisition of
LDDI, Golden Ark, Inc. changed its name to Long Distance Direct Holdings, Inc.
("LDD Holdings"). In May, 1996, LDDH Holdings formed Long Distance Direct
Marketing, Inc., a New York corporation. ("LDDM") as a wholly-owned subsidiary
for the purpose of producing and marketing a televised infomercial designed to
recruit additional independent sales representatives. References herein to the
Company, to LDDI or to LDDM shall mean LDD Holdings, LDDI and LDDM collectively
unless the context otherwise requires. The financial statements included
elsewhere herein relate to the business which was known as LDDLP prior to the
acquisition of LDDLP by LDDI and the subsequent acquisition of LDDI by LDD
Holdings.

The Company's offices are located at One Blue Hill Plaza, Pearl River,
New York 10965. The Company's telephone number is 914-620-0765.

GENERAL

Long Distance Direct Holdings, Inc. is a non-facilities-based, or
"switchless" reseller of outbound and inbound long distance telephone,
teleconferencing, cellular long distance and calling card services to small and
medium-sized commercial customers and residential customers. All of the services
sold by the Company are currently provided either by AT&T or by MCI. Management
believes that AT&T's and MCI's long-distance service remains the preferred
option of the majority of telephone users. According to a 1995 FCC report, AT&T
and MCI accounted for approximately 56% and 17% respectively of total domestic
long-distance revenue for calendar year 1994. The Company signs up customers
and connects or provisions them onto the network of AT&T or MCI, which provide
the actual transmission service. The Company has agreements with AT&T and MCI
to purchase a minimum annual level of long distance telephone service at
discounted bulk rates which are lower than rates LDDI's customers, with modest
call volume, would be able to obtain for themselves. The Company does not own
or lease any telephone equipment or participate in the call completion process.
Provision of the service to the customer requires no equipment installation or
modification on the customer's premises; all action to provide the service
takes place within the local and inter-exchange carriers. The customer retains
his existing telephone numbers and incurs no expense in making the decision to
switch to the services of the Company.

MARKETING AND SALES

The Company obtains customer orders through three separate methods
typically employed by sellers and resellers of telephone services: field sales,
telemarketing, and direct mail. Until the beginning of 1994, over 95% of the
Company's billings related to field sales, with the balance coming from
customers who had responded to the Company's direct mail programs. In January
1994, however, the Company commenced a program of outbound telemarketing, and in
June 1994 it increased the volume of its direct mail activity. Currently,
approximately 29% of the Company's billings are derived from field sales using a
system of self-employed independent sales representatives, who are contractually
restricted from performing such services for competitors of LDDI, approximately
64% are derived from telemarketing using a number of outside telemarketing
agencies specialized in the sale of telephone services on a non-exclusive basis,
and the remainder are derived from direct mail programs. The Company intends to
increase its direct mail marketing efforts and to establish its own in-house
telemarketing capability. The Company also test marketed a televised marketing
program during the fourth

<PAGE> 3

quarter of 1996 to attract additional participants to its independent sales
force and has started to roll out such program in January 1997. There can be no
assurance, however, that such roll out will be successful or that independent
sales agents recruited thereby will significantly increase the level of the
Company's billings.

The Company's field sales force is based on a system of independent
sales representatives, all of whom are self-employed. All sales representatives
are compensated on a commission-only basis. Commissions are payable to
representatives based on actual monies collected by LDDI which can be attributed
to specific customers. LDDI's current active sales force numbers about 20
individuals. Management is considering a number of new methods of recruiting
field sales representatives including the televised marketing program referred
to above. LDDI has prepared a comprehensive manual for use by sales
representatives as a training tool for reference on the job. LDDI also generates
sales through direct mail programs, backed up by a small in-house telemarketing
department. Until June 1994, this activity comprised exclusively the sending of
direct mail packages to small businesses, inviting them to telephone LDDI's own
800-number, and incorporating a special discount offer, with conversions of
inquiries being carried out by an inbound telemarketing team. In June 1994, the
Company commenced another direct mail approach requiring customers to complete
and send in a written sales order, with follow-up information being obtained by
the Company's in-house telemarketing department. The results of the various
programs that have been carried out to date have generated sufficient response
to lead management to seek to expand the Company's direct mail activity.

In January 1994, in order to market its services to small business
users, the Company contracted with a telemarketing company specializing in the
solicitation of orders for long-distance telephone services on behalf of
resellers. The first billings attributable to customers introduced by this
company were generated in February 1994. Since such date, the Company contracted
with a number of additional telemarketing agencies, similarly specialized in the
sale of telephone services, to market its services. The telemarketing agencies
are compensated principally by the payment of an up front fee based on
successfully provisioned orders and average per customer billing levels.
Payments on account are made on delivery of a validated order to the Company
with ongoing reconciliation and adjustment in light of results achieved. The
Company now intends to supplement the efforts of the outside agencies by
establishing an in-house outbound telemarketing department.

In November 1996, the Company signed a mutually exclusive agreement
with Kaire International, a multi-level marketing company, to sell telephone
service to that company's associates and through those associates to the public
at large. There can be no assurance, however, that Kaire will be successful in
selling LDDI's service to those associates or that the associates themselves
will be successful in selling such service to the public at large.

In January 1997, the Company signed a mutually exclusive agreement with
National Benefits Consultants, LLC ("NBC"), a company in alliance with Deloitte
& Touche LLP, under which NBC will market the Company's telecommunications
services to audit clients of Deloitte & Touche LLP and other commercial
entities. There can be no assurance, however, that NBC will be successful in
selling LDDI's services pursuant to this agreement.

TELEVISED MARKETING PROGRAM

Historically, the Company has obtained customer orders through three
separate methods typically employed by sellers and resellers of telephone
services: field sales, telemarketing and direct mail. At the outset, the Company
employed the field sales method exclusively. Although this method was
successful, and generated sales characterized by lower bad debt and customer
attrition levels than, for example, telemarketing or direct mail, it had as
principal drawbacks the facts that (i) the recruitment of independent sales
representatives proved a time-consuming and expensive procedure and (ii) the
Company, in common with other resellers of telephone services, experienced a
high level of turnover amongst its representatives.

In order to procure the advantages of sales generated by independent
representatives without the drawback of high turnover of personnel, the Company
conceived the idea of recruiting independent representatives in large numbers
through paid television programming, and to mitigate the cost of recruitment by
requiring the new representatives to pay a modest sum to purchase the right to
become independent sales representatives of the Company. The method chosen to
achieve this objective was the infomercial, a paid television program used
extensively by the direct marketing industry.

<PAGE> 4

To this end, the Company, through its wholly-owned subsidiary, Long
Distance Direct Marketing Inc, entered into a contract in May 1996, with
Guthy-Renker Distribution Inc. ("Guthy-Renker"), an infomercial producer and
promoter in the United States, to produce and market a thirty minute infomercial
selling the right to become an independent sales representative of the Company.
Under this contract, the Company is responsible for financing the cost of
production of the infomercial program, while Guthy-Renker is responsible for
financing both the cost of media and the costs of fulfilling the orders procured
by the infomercial.

The net profit, if any, generated by the infomercial, comprising the
revenues from the sale of "sales packages" to members of the public, less the
costs of production, media and fulfillment, is to be split evenly between
Guthy-Renker and the Company. All billings of telephone service generated for
the Company by representatives recruited through the infomercial are to accrue
to the sole benefit of the Company, subject to the payment to Guthy-Renker of a
commission of 2% on cash collected from such billings, net of taxes. In
addition, for every $5,000,000 of gross revenue, excluding taxes, received by
the Company from the sale of telephone services by the Company's sales agents
recruited through the infomercial, Guthy-Renker shall receive, at its option,
either (i) a number of shares of the Company's Common Stock determined by
dividing $100,000 by an amount equal to 75% of the closing bid price of a share
of the Company's Common Stock on the day immediately preceding the delivery to
the Company of written notice of Guthy-Renker's election to receive such shares,
or (ii) $100,000 cash. The Company has agreed to grant "piggyback" registration
rights to Guthy-Renker with respect to any shares of the Company's Common Stock
issued to Guthy-Renker under the contract.

Test marketing of the infomercial took place in late September and
October 1996 and achieved a level of success such that the Company and
Guthy-Renker decided to roll out the program in the first quarter of 1997. Such
roll-out commenced in January 1997. There can be no assurance that the roll-out
will also be successful, nor can there be any assurance that representatives
recruited by this method will generate significant levels of billings of
telephone service for the Company.

MULTI-LEVEL MARKETING

In November 1996, the Company signed an agreement with Kaire
International, a multi-level marketing company, to supply telephone service to
that company's registered associates and through those associates to the public
at large. Kaire International has historically been a health and body care
company and there can be no assurance that its efforts on the Company's behalf
will be successful in the telecommunications market.

The agreement with Kaire, which is mutually exclusive and which in its
initial period runs to December 31, 1999, provides that LDDI will supply a full
range of telecommunications services on the AT&T and MCI networks which will be
co-extensive with the services offered by AT&T and MCI. In addition to providing
telephone service, LDDI will work with Kaire to develop suitable marketing
materials as well as to provide training for all Kaire associates. LDDI will
make available all training aids for Kaire at a mutually agreeable price. LDDI
retains ultimate exposure for Kaire's uncollected billings though Kaire will
mitigate bad debt through offsets against commissions due by Kaire to the
end-subscriber.

There can be no assurance that Kaire will be successful in selling
LDDI's service to its associates or that those associates themselves will be
successful in selling such service to the public at large.

NATIONAL BENEFITS CONSULTANTS/DELOITTE & TOUCHE LLP

In January 1997, the Company signed an agreement with National Benefits
Consultants, LLC ("NBC"), a company in alliance with Deloitte & Touche LLP,
under which NBC will market the Company's telecommunications services to audit
clients of Deloitte & Touche LLP and other commercial entities. NBC was
established in order to review costs and expenses incurred by clients of
Deloitte & Touche LLP, initially in the medical expenses field but subsequently
on a wider basis, and to make recommendations for alternate sourcing of certain
products and services so as to reduce the cost burden on those clients.

The agreement with NBC, which is mutually exclusive and which runs to
December 31, 2001, provides that LDDI will supply a full range of
telecommunications services to companies and businesses introduced to it by NBC.
In respect of billings to such companies and businesses, NBC will be entitled to
compensation not exceeding 10% of cash receipts

<PAGE> 5

therefrom, net of taxes. Additionally, the Company has granted to NBC an option
to purchase up to 20% of the Company's stock at $3.00 per share. The actual
percentage that may be purchased under this option will be determined by
reference to the proportion that revenues from customers introduced by NBC bear
to LDDI's total revenues for the twenty four months prior to exercise of the
option. The option may not be exercised prior to thirty months from the date of
the agreement except in certain specified circumstances, the principal of which
is any acquisition of the Company by a third party. In January 1997, LDDI
entered into a referral agreement expiring December 31, 2001 with NBC whereby
LDDI will receive a percentage compensation from NBC for those LDDI customers
who purchase NBC services. There can be no assurance that NBC will be successful
in selling LDDI's services pursuant to the agreement.

SERVICES PROVIDED

AT&T

The Company currently resells to its customers AT&T outbound and
inbound long-distance telephone service, including teleconferencing, cellular
long-distance and calling card services. Outbound service had, until September
1994, been provided exclusively under the Company's Software Defined Network
("SDN") agreement with AT&T, but such service is now also provided on
Distributed Network Service ("DNS"). The Company's pricing to its customers for
the two services is identical, but DNS can be provisioned considerably faster
than SDN.

In February 1997, the Company signed a four-year negotiated contract
tariff with AT&T effective March 1, 1997 that supersedes the Company's prior
contract with AT&T dated September 1, 1995. Under the new contract the Company
has been granted more favorable pricing on both domestic and international
usage.

Customers may also request a calling card. This allows use of the
telephone system either through off network dialing using an 800-number access
or through the traditional "zero plus" access method. The calling cards have
been designed to the Company's own specifications and are issued subject to the
condition that the liability for usage thereunder remains that of the end-user
unless and until loss is reported to LDDI. In turn, LDDI has an on-line
connection with AT&T's Network Remote Access Monitoring System. Once LDDI has
reported a loss or theft to AT&T, LDDI has no further liability for usage on the
lost or stolen card. The Company is able to set and vary thresholds and usage
parameters that have been designed by AT&T to facilitate early detection of
calling card theft or abuse.

MCI

Since March 1996 and pursuant to contracts signed in August 1995 and
March 1996, the Company has also commenced the resale of MCI outbound and
inbound long-distance telephone service, including teleconferencing, cellular
long-distance, calling card and debit card services. Under the calling card
arrangements, customers may access the Company's network either through an
800-number or through "zero Plus" dialing. In the case of calling cards under
the MCI contract, MCI retains full liability for fraudulent use. Provisioning of
customers onto the MCI network is done directly by the Company in conjunction
with the Local Exchange Carriers.

Whereas, under its arrangements with AT&T, the Company is permitted to
sell only to commercial customers, the MCI contract permits resale to both the
commercial and the residential markets. Furthermore, the pricing of the MCI
contract makes residential sale a realistic and financially attractive
proposition. Finally, with respect to the resale of MCI service, the Company is
able to offer its customers the alternative of billing through their Local
Exchange Carrier. This is believed to be important in relation to the
residential market, which is considered to be less willing than the commercial
market to receive separate monthly long distance bills.

SUPPLY OF SERVICE

Neither the outbound service nor the inbound service provided on the
AT&T or MCI networks requires any equipment installation or modification on the
customer's premises; all action to provide the service takes place within the
local and inter-exchange carriers. The customer retains his existing telephone
numbers and incurs no expense in making the decision to switch to the Company's
service. The Company provides its customers with services at a price which
management believes, because of the average customer's calling volume, would
generally be unavailable to such customers.

<PAGE> 6

The Company's administrative and accounting systems are structured to
address the two principal areas of activity in the Company's business and their
financial and operational interface: the sales division and the customer account
base. With three separate sources of new orders, and a customer base that more
than doubled in 1994, management believes that the continued development and
structural integrity of the business depends on fundamentally sound
administrative and operating systems.

In recognition of this, the Company's management from the outset
established a computerized database under the direction of an outside computer
consultant. This database records and tracks all new sales representatives,
together with their reporting hierarchies, to enable monthly commission
statements to be derived from data supplied electronically from AT&T and MCI,
and to respond to all personnel questions. Additionally, the database records
and implements all activity from the outside telemarketing agencies, from order
entry through submission of orders to AT&T or the Local Exchange Carriers (in
the case of MCI services) to production of the data needed to effect monthly
accounting reconciliations with those agencies. The database tracks and
implements order entry and analyzes the performance of the various direct mail
programs. It also records all customers, together with their sales
representative or other introductory source attribution, and allows both direct
electronic interface with the Company's external billing agency for billing and
collection purposes and for internal interrogation for customer service
purposes.

To support this function, LDDI has established computer-based operating
procedures that track each new customer through its provisioning sequence with
AT&T and the Local Exchange Carriers (where MCI service is concerned), enabling
LDDI to respond systematically and promptly to the reports generated by AT&T and
the Local Exchange Carriers on provisioning progress. In addition, LDDI operates
a customer service function as well as a dedicated credit control function.
Insofar as the Company is marketing services that are available from a wide
range of alternative suppliers, the high level of customer service that it can
offer is an area in which management believes the Company can outperform its
competitors. In this regard, as evidence of its responsive administrative
systems, the Company has a policy of calling its customers on a rotating basis
to establish the level of their satisfaction with the Company's service and to
identify and attend to any additional needs that they might have.

Through March 1996, the Company's billing was performed on its behalf
by American College and University Systems ("ACUS"), a strategic business unit
of AT&T that provides resellers with a customized long-distance billing service
known as the "AT&T Bill Manager Service." The Company established its own
tariffed pricing elements and used the ACUS service to bill end-users at its
designated tariffed rates.

From monthly billing tapes and feeds supplied directly by AT&T, ACUS
produced and delivered invoices to all end-users in the Company's name, and
end-users remit payments directly to the Company through a "lock box" set up by
the Company. By using the services of ACUS, the Company was able to avoid the
labor-intensive administration of performing the billing function itself during
a period of strong account growth while retaining control over its pricing,
billing and collection policies. The Company negotiated a release without
penalty from its contract with ACUS, capable of implementation at any time after
July 1995, in order to be able to use the services of a billing company that was
both less expensive and better interfaced with the Company's computer systems.
To that effect, the Company entered into an agreement with Digital
Communications of America Inc. ("DCA") under which DCA provides billing services
to the Company in respect of both AT&T and MCI service. The first DCA bills were
generated in April 1996. The Company has also signed an agreement with MCI which
allows the Local Exchange Carrier to bill and collect on behalf of the Company.
The Company may also in the future consider employing its own billing personnel
if and when it believes that the financial benefits of so doing will outweigh
the practical difficulties involved.

The Company's overall operational strategy is based on management's
belief that the sales function is highly dependent upon the strongest possible
administrative support. The lack of such support would result in a failure to
motivate and retain sales people or respond to the needs of the outside
telemarketing agencies, customer dissatisfaction, and the loss of revenues
through inefficiencies and inattention. Management believes that the Company's
attention to this area of its operations distinguishes it from much of its
competition.

<PAGE> 7

ARRANGEMENTS WITH PROVIDERS

AT&T

The Company commenced operations under Part II of AT&T's SDN tariff, a
generic tariff relating to outbound long-distance service only, and available to
both end-users and resellers satisfying AT&T's requirements both for usage
commitment and cash deposit for security purposes. Under this tariff, AT&T's
customers, which included the Company, received a discount from published tariff
rates in return for the commitment and deposit referred to above. In December
1992, the Company entered into a new five-year agreement with AT&T under Part VI
of the SDN tariff pursuant to which it increased its annual usage commitment in
return for the higher discounts available thereunder.

Effective September 7, 1994, the Company entered into an individually
negotiated contract tariff with AT&T for outbound long-distance service. This
contract tariff, which superseded the Company's arrangements under Part VI of
the SDN tariff, was the subject of an individual filing by AT&T with the FCC,
and had a three year term. Under this contract tariff AT&T agreed to supply the
Company, and the Company acquired the right to resell, both SDN and DNS service.

Effective September 1, 1995, the Company entered into a new
individually-negotiated contract for a fixed term of four years with a one year
extension at the Company's option. This tariff, which superseded all the
Company's other arrangements with AT&T embraced both outbound and inbound
long-distance service. Under the contract tariff, the Company had accepted a
minimum purchase requirement under which it was obligated to pay such minimum
regardless of whether its usage reached such levels. The minimum purchase
requirement was a constant amount throughout the duration of the contract
tariff. The minimum quarterly purchase requirement in respect of outbound
service, SDN and DNS combined, for each of the sixteen quarters of the contract
tariff, and for the four subsequent quarters if the Company elected to exercise
its extension option, was $1,200,000 per quarter. Also included within the
contract tariff was a requirement that a specified minimum proportion of each
quarter's usage relate to "new business", i.e. currently non AT&T business.

Until October 1992, the Company offered only outbound service to its
customers: in that month the Company started to offer its customers AT&T inbound
800-number service through a third-party intermediary provider. However, in
November 1993, the Company ended its arrangement with the third-party provider
and contracted directly with AT&T under CSTP II, a generic tariff, to enable it
to resell inbound 800-number service. In April 1994, the Company signed a
three-year individually-negotiated contract tariff with AT&T, effective May 1,
1994, for the supply of 800-number inbound telephone service with volume
discounts in excess of those available under CSTP II, in return for a minimum
annual purchase requirement of $1,200,000. AT&T had advised the Company that
this contract tariff was the first individually-negotiated contract tariff ever
signed for inbound 800 service.

Effective September 1, 1995, this contract tariff was superseded by the
new individually-negotiated contract tariff described above in relation to the
Company's outbound service. Under this tariff, which embraced both outbound and
inbound long-distance service, the Company continued to have a minimum annual
purchase requirement of $1,200,000 for inbound usage. In February 1997, the
Company entered into a new four-year contract tariff with AT&T effective March
1, 1997 for the supply of inbound and outbound telephone service. The new
contract supersedes the Company's prior contract with AT&T dated September 1,
1995. The Company's minimum quarterly purchase requirement remains constant at
$1,200,000 in years one to three and increases to $1,475,000 in year four.
Failure to achieve the minimum will require payment of the shortfall by the
Company. Under the contract tariff, the Company is obligated to make payments
equal to its minimum purchase requirement for the outstanding term of the
agreement if there is an early termination thereof. The Company has received
more favorable pricing from AT&T on both domestic and international usage under
the new contract. In addition, AT&T has agreed to issue a credit waiving the
entire cumulative shortfall charged under the old contract (approximately $2.3
million as of December 31, 1996, none of which has been reflected in the
Company's financial statements included herein) within thirty days after the
Company discharges its past due obligation to AT&T of $140,000, which amount is
scheduled to be paid by June 1, 1997.

MCI

On August 4, 1995, 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

<PAGE> 8
distance, calling cards, debit cards, teleconferencing and MCI enhanced
services. This agreement was subject to an eight (8) month ramp period followed
by a thirty-six (36) month service period. In March 1996, the Company signed
another individually negotiated contract with MCI, and an amendment thereto in
September 1996, which superseded the contract of August 1995. This new contract,
which requires higher minimum purchase levels than the prior agreements but
affords better prices, is subject to an eighteen (18) month ramp period followed
by a thirty (30) month service period.

During the first eight months of the ramp period, the Company has no
minimum purchase obligations. During the ninth through twelfth months, the
Company is obliged to purchase $250,000 of usage per month; during the
thirteenth through fifteenth month, $500,000; during the sixteenth through
eighteenth month, $750,000; 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. Since this six (6) month period has expired with no
notice of termination by either party, the agreement is to run for the full
forty-eight (48) month term.

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.

RECENT DEVELOPMENTS

On September 24, 1996, AT&T introduced a single-rate calling plan for
domestic residential long-distance calls, under which it would charge a flat
rate of fifteen cents ($.15) per minute. The Company's current business involves
almost exclusively the resale of AT&T and MCI telephone service to commercial
customers. The AT&T introduction has no direct effect on the Company's current
commercial business or any expansion of its service to commercial customers, and
based on industry experience the Company does not believe that AT&T's
introduction of a new residential plan suggests an imminent introduction of a
similar commercial plan.

The Company has recently entered the residential market through the
resale of MCI telephone service to residential customers. Since the Company
neither resells nor has any plans or arrangements to resell AT&T service to
residential customers, it considers the potential impact upon the Company of the
AT&T introduction to be limited to the pricing environment in which the Company
markets residential telephone service.

The AT&T single-rate calling plan is described by AT&T as designed to
simplify long distance pricing and ease consumer confusion. It is not described
by AT&T as a rate reduction and, based on its knowledge of AT&T's existing rate
plans, the Company does not consider the new AT&T plan to embody a rate
reduction. The Company believes that it is offering and will be able to continue
to offer residential telephone service at prices significantly lower than AT&T's
proposed flat rate and that the introduction of AT&T's single rate calling plan
will not have any material adverse affect on the business of the Company or on
the Company's marketing plans for residential service.

No assurances, however, can be given that either the Company will
remain able to offer residential telephone service at prices significantly lower
than AT&T and certain of the Company's other major competitors or that AT&T or
such other major competitors will not introduce new commercial telephone service
plans.

CUSTOMERS

At December 31, 1996, the Company had over 10,000 active billing
customers. Customers generated by field sales activity are predominately based
on the Eastern seaboard; those generated either by telemarketing or by direct
mail have no particular geographic bias. Through December 31, 1995, the
Company's customer base was exclusively commercial and contained no residential
element. It covers almost every generic field of business activity in the United
States. In the second

<PAGE> 9
quarter of 1996, the Company began marketing to residential customers. No single
current customer represented more than 3% of billings for the year ended
December 31, 1996.

COMPETITION

The long-distance telecommunications market is highly competitive. The
Company does not believe it is a significant factor in the industry. The
principal competitive factors affecting the Company's market share are pricing,
customer service and value-added services such as customized billing,
teleconferencing, calling cards and prepaid calling cards. The Company's ability
to compete effectively will depend upon its continued ability to maintain high
quality, market-driven services at prices generally equal to or below those
charged by its competitors. The long-distance carriers which sell in competition
with the Company include MCI, Sprint, and AT&T itself. Resellers which sell in
competition with the Company include Long Distance Discount Services, LCI
International, Inc., U.S.Tel Inc., Excel Communications, Protel Communications
Corp., Equalnet, Midcom, Tel-Save and Pacific Coin. Of the resellers, some are
switchless and some have their own switches and leased lines: some sell services
of both AT&T and other long-distance carriers. Among the resellers, management
believes that LDDI is one of only a few to market AT&T long distance services
under a direct contractual relationship with AT&T. Management has also been
informed that the Company is one of only a limited number of resellers to be
granted a resale contract by MCI.

Price competition in the long-distance telecommunications industry has
increased in recent years due to the entry of many companies into the market.
Management's policy for gaining and retaining customers is based on four
principal components: first, marketing only premier quality long-distance
services, such as those provided by AT&T and MCI; second, offering rates for
telephone usage that are at least comparable with, and in many cases less
expensive than, those generally available to its target market; third,
developing and maintaining responsive information systems that enable customer
service to be carried out on a timely and efficient basis; and fourth, staff
training programs that teach personnel how to handle customer concerns both
efficiently and courteously.

INDUSTRY BACKGROUND

On January 1, 1984, AT&T's divestiture of the Bell System went into
effect. As a result of the decree ordering such divestiture by AT&T (the "AT&T
Divestiture Decree"), AT&T was forced to divest its 22 Bell Operating Companies
("BOCs"), which were reorganized under seven Regional Bell Operating Companies
("RBOCs"), such as Pacific Telesis and US West, Inc. The RBOCs own and are
responsible for operations of the BOCs in each of their regions. The BOCs, as
well as other independent companies which provide local telephone service, are
characterized as local exchange carriers. The local exchange carriers are
responsible for providing dial tone, local lines and billing for local service
as well as local access for long-distance traffic.

As an additional part of the AT&T Divestiture Decree, the United States
was divided into approximately 200 Local Access and Transport Areas ("LATAs").
AT&T was given the right to compete for inter-LATA long-distance business, but
was prohibited from providing intra-LATA long-distance and local service. The
BOCs and other local exchange carriers were permitted to compete for intra-LATA
long-distance and local service, but were prohibited from entering the
inter-LATA long-distance market in which the Company competes, although
legislation has since been enacted permitting the BOCs and other local exchange
carriers to compete in the long-distance market and allowing AT&T and other
inter-exchange carriers to compete in the local markets.

The AT&T Divestiture Decree also required the local exchange carriers
to provide all inter-exchange carriers with access to local telephone exchange
facilities that are "equal in type, quality and price" to that provided to AT&T.
In addition, the local exchange carriers were required to conduct a subscription
process allowing consumers to select their long distance carrier. This
development, know as "equal access," enabled consumers to complete calls using
their selected long-distance carrier by simply dialing "1" plus the area code
and number. Prior to equal access, consumers using an inter-exchange carrier
other than AT&T had to dial a local number, then an access code, then the area
code and number of the call destination to complete a call. With equal access,
all inter-LATA traffic is carried by the local exchange carriers. The AT&T
Divestiture Decree and the implementation of equal access constitute the
fundamental regulatory developments that allow inter-exchange carriers other
than AT&T to enter and compete in the long-distance telecommunications market.

<PAGE> 10
Since the AT&T Divestiture Decree, the long-distance industry has
experienced rapid technological development. One significant technological
change was the advent of digital transmission technology, which represented an
improvement over analog technology. Because the BOCs and many local exchange
carriers converted rapidly to digital switches, digital technology was necessary
for inter-exchange carriers to connect to the local exchange carriers for equal
access. Accompanying the movement toward digital switching was the rapid
development and implementation of fiber optic circuitry, which also requires
digital technology. While AT&T had once been the only source of high quality
transmission facilities, several other companies, including MCI and Sprint,
entered the business of building transmission facilities, using primarily fiber
optic circuits.

Following the AT&T Divestiture Decree, and the birth of competing
long-distance carriers, the inter-exchange carriers developed the concept of the
virtual private network ("VPN") in order to shift traffic onto the public
network from large, private networks transmitting on dedicated facilities. VPNs
are aimed at large organizations that have many locations and that spend at
least $50,000 per month on long-distance calling. The Software Defined Network
("SDN") is AT&T's most sophisticated form of VPN, utilizing its latest fiber
optic facilities and offering significant technical and administrative benefits
to major long-distance users.

In the late 1980's resellers perceived an opportunity to package,
aggregate and market AT&T's premier service at rates lower than small businesses
could expect to obtain directly from any other carrier, with billing carried out
directly by AT&T. The Company believes that this event created the switchless
reseller industry.

Between October 1989 and March 1990 many companies entered the market
of SDN resale, recruiting field sales forces to market to small and medium-sized
businesses. Whereas AT&T is generally believed to have found itself involved
unintentionally in resale at the outset, in 1992 it introduced Distributed
Network Service ("DNS") specifically as a resale product. In 1994, MCI also
decided to make its network available to resellers such as the Company.
Following negotiations which commenced in February 1995 the Company signed an
agreement effective September 1, 1995 to resell MCI's services. That agreement
was superseded by an upgraded contract in March 1996. Provision of MCI service
by the Company commenced in March 1996.

Resellers are classified into two categories, facilities-based and
non-facilities based. A facilities-based carrier utilizes lines owned by third
parties but operates its own switching equipment and usually bills its own
customers directly. A non-facilities-based carrier does not own or lease any
telephone equipment or participate in any portion of the call completion
process. For billing purposes it receives magnetic tapes of its customers'
long-distance usage from its service provider and uses this information as a
basis for billing. Facilities-based carriers have both an investment in the
network needed to complete the call process and a geographic concentration,
whereas non-facilities-based carriers have neither such investment nor any
geographic constraint.

As a result of the changes brought about by the AT&T Divestiture
Decree, secondary inter-exchange carriers, including the Company, generally
provide long-distance telephone services at a significantly lower cost than the
comparable services offered directly by AT&T, MCI and Sprint. The Company's
success will depend on its continuing ability to provide comparable services at
prices equal to or lower than its competitors in the future.

REGULATION

Although in the past the FCC had extensively regulated interstate
communications, the trend during the 1980's was toward lessened regulation.
Non-dominant inter-exchange carriers such as the Company were not required by
the FCC to maintain a certificate of public convenience and necessity or to file
tariffs with the FCC other than with respect to international calls and except
for informational tariffs, which were required to be filed with respect to
operator services. Over this period of time, the FCC had retained general
regulatory jurisdiction over the sale of interstate telecommunications services
by inter-exchange carriers, including the requirement that calls be charged on a
nondiscriminatory, just and reasonable basis.

TARIFFS. On November 13, 1992, the United States Court of Appeals for
the District of Columbia Circuit (the "Court of Appeals") ruled that the FCC
lacks authority to waive the requirement that non dominant inter-exchange
carriers file tariffs. The Court of Appeals reversed the FCC's "forbearance
policy," which had excused inter-exchange carriers from

<PAGE> 11
tariff filing requirements. The FCC had also begun a new proceeding to
promulgate rules for non-dominant inter-exchange carriers' tariff filings in a
streamlined manner so as to give substantial flexibility to the Company and
similarly situated competitors. The FCC has enacted certain rules and is
expected to enact others regarding tariff filing requirements for non dominant
carriers. The FCC has issued a statement publicly announcing its intention not
to enforce the strict tariff format and content rules against non dominant
inter-exchange carriers in the interim. In July 1993, a Federal District Court
(the "District Court") granted AT&T's request for a preliminary injunction
against MCI for failure to file customer-specific tariffs. MCI had relied upon
its earlier streamlined tariff filing, which set forth ranges of rates.

As a consequence of the Court of Appeals decision and the District
Court's ruling, the Company could be subject to complaints seeking damages,
assessment of monetary forfeitures and/or injunctive relief filed by any party
claiming to be injured by the Company's failure to file tariffs. The Court of
Appeals decision suggests that reliance upon the forbearance policy may not
excuse past failure to file tariffs, because the Court ruled that the
forbearance policy itself was unlawful. The Court of Appeals does not, however,
require the FCC to assess forfeitures or damages or take any other specific
enforcement action against those carriers who relied upon its policy, although
it does direct the FCC to give further consideration to the issue of damages in
a private suit between AT&T and MCI. In February 1993, AT&T filed lawsuits in
Federal court against MCI, Sprint and Williams Telecommunications Group, Inc.
("WilTel") for alleged failure to file proper tariffs and seeking lost profits
on a denied loss of sales of $1 billion. WilTel responded by filing a Federal
court complaint against AT&T for illegal pricing activity, and similar
complaints filed by MCI and Sprint have been pending at the FCC for several
years. Moreover, the implications for other long-distance carriers of the
District Court's preliminary injunction against MCI may be substantial unless
and until the FCC acts. There is a possibility that the aftermath of the
ultimate consequences of the Court's ruling may affect the Company's pricing
practices. AT&T has also indicated that it may institute similar suits against
other inter-exchange carriers. MCI has filed a motion for reconsideration of the
Court's preliminary injunction and has also filed a petition for declaratory
ruling with the FCC to declare that it and other inter-exchange carriers cannot
be held liable for good faith reliance on the FCC's now reversed forbearance
policy. At this time, the Company cannot predict the likelihood of the filing of
complaints against it or potential liability, if any.

POTENTIAL INCREASED COMPETITION. In 1984, pursuant to the AT&T
Divestiture Decree, AT&T divested its 22 wholly owned BOCs. In 1987, as part of
the triennial review of the AT&T Divestiture Decree, the U.S. District Court for
the District of Columbia denied the BOCs petition to enter, among other things,
the inter-LATA long-distance telecommunications business. The District Court's
ruling was appealed to the Court of Appeals, which, in 1990, affirmed the
District Court's decision to retain the inter-LATA prohibition for the BOCs.
Recent legislation passed in Congress now permits the BOCs to provide inter-LATA
service, subject to the provisions outlined in Recent Legislation below. As
indicated below, the Company and all other providers of inter-LATA service may
now expect to face substantial additional competition. This legislation follows
the relaxing by the FCC of its regulatory requirement applicable to foreign
controlled inter-exchange carriers such that these firms and others that may
enter the market in the future will have greater flexibility to compete in
international routes.

REGULATION OF AT&T. Currently, the Company and the inter-exchange
carriers with which it competes are subject to less regulation and have greater
pricing flexibility than AT&T. However, the difference in the level of
regulation between AT&T and its competitors has recently been narrowed. The
general trend of the FCC is to treat AT&T interexchange business service as
competitive and lessen FCC reviews of the rates AT&T charges for many of its
business services. In addition, the FCC has adopted "further streamlined"
regulation for many of AT&T's domestic business services, which effectively
removes various controls under existing regulations governing AT&T's pricing
flexibility. The FCC also allows AT&T to bundle individualized packages of
integrated services to specific, high-volume customers at negotiated prices. The
Court of Appeals recently held that these so-called Tariff 12 offerings are
lawful under the Federal Communications Act. The new rules allowing the further
streamlining of AT&T's regulation are the subject of judicial appeals pending
before the Court of Appeals. The outcome of these appellate proceedings is at
this time uncertain. Management of the Company does not believe that the
implementation by the FCC of the further streamlined rules would have a material
adverse effect on its business or operations. However, should the FCC affirm
further streamlined regulation with respect to a number of AT&T's domestic
business services, AT&T can be expected to offer and price its business services
more aggressively, which in turn, may affect the Company's pricing policies and
gross margins.

RECENT LEGISLATION. Under the Telecommunications Act of 1996, which
became law on February 8, 1996, many restrictions were abolished that acted as
entry barriers in telecommunications markets. Of greatest significance to the

<PAGE> 12
Company, this legislation eliminates the restrictions imposed by the AT&T
consent decree on the provision by the BOCs of long distance services. However,
the entry of a BOC into the long-distance market will only be permitted if it
has satisfied the FCC and the Justice department that it has satisfactorily
opened its local exchange market to competitors such as the Company. The process
of entry by the BOCs into the long distance market will take time to complete.
Although the Company intends to take advantage of the recent legislation by
seeking to resell local telephone service, there can be no assurance that it
will be successful in so doing or that the entry of the BOCs into the long
distance market will not damage the Company's business and financial position.

STATE REGULATION. The Company's intrastate long-distance
telecommunications operations are subject to various state laws and regulations,
including, in many jurisdictions, certification requirements. Generally, the
Company must obtain and maintain certificates of public convenience and
necessity from regulatory authorities in most states in which it offers
intrastate long distance services. Some state regulatory authorities also
require carriers to file tariffs which set forth their rates and conditions of
service. The Company has obtained certificates, and filed tariffs, to provide
service in a majority of the states where it conducts business. Some states
prohibit inter-exchange carriers from providing intrastate service (calls both
originating and terminating in the same state) or restrict or condition the
offering of intrastate or intra-LATA long-distance service by the Company and
other inter-exchange carriers. Those states that do permit the offering of
intrastate or intra-LATA service by inter-exchange carriers generally require
that end users desiring to access these services dial special access codes which
put the Company at a disadvantage vis-a-vis local exchange carrier intrastate
and intra-LATA toll service, which generally requires no similar access code.
The Company historically has not experienced significant problems in its
dealings with state regulatory authorities. Changes in regulatory requirements,
however, could result in changes in the manner in which the Company conducts its
operation. The Company may also incur the expense of legal fees and related
costs in order to comply with such changes in regulatory requirements. The
Company plans to obtain the required certification in each state to provide
local service.

EMPLOYEES

At January 31, 1997, the Company had 35 employees, including the
directors and executive officers, of whom 31 are full time and 4 are part-time.
Of these 35 employees, 10 are responsible for order entry, customer service and
operations, 18 are responsible for accounting and credit control, 3 are
responsible for marketing support, 3 are responsible for general management and
administration and 1 is responsible for maintaining the computer system. If the
Company is successful in its proposed marketing programs, management envisages
that there will be a need for a continuing increase in the number of its
employees.

In addition to its employees, the Company has a total of approximately
175 self-employed independent sales representatives who are either currently
active on the Company's behalf or who have introduced customers to the Company
which are still using the Company's network.

ITEM 2. Description of Property

The Company operates out of a 10,700 square foot office at Blue Hill
Plaza, Pearl River, NY, a modern office facility. The space currently occupied
by the Company is leased under a lease expiring in December, 2000 with annual
rent of $192,834 rising to $214,260 commencing January 1999.

ITEM 3. Legal Proceedings

The State of New York Department of Taxation and Finance has filed two
separate warrants against the Company evidencing judgment liens for uncontested
tax liabilities. One such warrant evidences an amount, including penalty and
interest, of $10,449.21. The other warrant evidences an amount, including
penalties and interest, of $5,238.61. The Company negotiated the payment of
these liabilities with the Department with monthly payments being made over a 24
month period ending July 1997, until which time the judgment liens will remain
in effect.

On September 19, 1996, the Company, Steven Lampert, Michael Preston,
LDDI and LDDLP entered into an

<PAGE> 13
agreement (the "Settlement Agreement") with Michael G. Miller, Jeffrey L.
Schwartz and JAMI Marketing Services, Inc. (the "Sellers"), to settle pending
litigation (the "Litigation") related to a Buy Out Agreement among the parties
dated April 6, 1993. In accordance with the terms of the Settlement Agreement,
the Company paid Sellers $500,000 in settlement of the Litigation and as full
satisfaction of all remaining obligations under the Buy Out Agreement; the
parties signed and delivered mutual general releases; and the Litigation was
dismissed with prejudice. See "Certain Relationships and Related Transactions --
Buy Out Agreement."

There are no other legal proceedings or claims, threatened or pending,
against the Company except as disclosed herein.

ITEM 4. Submission of Matters to a Vote of Security Holders

The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this report. The Company
did, however, obtain the written consent of the holders of a majority of the
Company's outstanding Common Stock to the adoption of an amendment to the
Company's 1995 Stock Option Plan.

PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters

The Company's Common Stock has been traded in the over-the-counter
market on the OTC Bulletin Board under the symbol LDDI since December 13, 1995.
There was no active trading market for the Company's Common Stock for more than
two years prior to December 13, 1995. Since December 13, 1995, trading activity
with respect to the Company's Common Stock has been extremely limited and
sporadic, and there is a significant number of days or weeks when there has been
no trading activity at all.

The following table reflects the high and low bid prices of the Company's
Common Stock as reported by the OTC Bulletin Board from December 13, 1995 to
March 24, 1997. Such prices are inter-dealer quotations without retail mark-ups,
mark-downs or commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
Fourth Quarter (December 13 to December 31) $3.00 $3.00

1996
First Quarter $3.00 $3.00
Second Quarter $6.00 $3.00
Third Quarter $6.00 $4.50
Fourth Quarter $5.00 $2.00

1997
First Quarter (through March 24) $4.50 $2.00
</TABLE>

As of March 17, 1997, there were approximately 294 shareholders of
record of the Company's Common Stock. On March 24, 1997, the closing bid price
for the Company's Common Stock was $3.50.

The Company has never paid any cash dividends on its Common Stock and
anticipates that, for the foreseeable

<PAGE> 14
future, no cash dividends will be paid on its Common Stock. Payment of future
cash dividends will be determined by the Company's Board of Directors based upon
conditions then existing, including the Company's financial condition, capital
requirements, cash flow, profitability, business outlook and other factors.

During the fiscal year ended December 31, 1996, the Company sold
securities that were not registered under the Securities Act of 1933, other than
unregistered sales made in reliance on Regulation S, as follows:

In February 1996, the Company issued 23,000 shares of Common Stock to
an aggregate of five individuals for consulting services. The issuance of such
shares was exempt under Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder.

Between April and July 1996, the Company sold 303,151 shares of Common
Stock at a price of $3.30 per share to two accredited investors. The sale of
such securities was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.

In May 1996, the Company (a) issued 7,988 shares of Common Stock to two
individuals in consideration of their having made bridge loans to the Company
and (b) issued 150,000 shares of Common Stock to Business Systems Consultants
Limited, an accredited investor, in consideration of its having provided a
convertible loan to the Company. The issuance of such shares was exempt under
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.

In May 1996, the Company granted Guthy-Renker the right to receive
shares of the Company's Common Stock valued at approximately $100,000 for every
$5,000,000 of gross revenue, excluding taxes, received by the Company from the
sale of telephone services by the Company's sales agents recruited through an
infomercial produced by Guthy-Renker. The grant of such right was exempt under
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.

In June 1996, the Company issued 12,500 shares of Common Stock to Wise
and Shepard as partial consideration for the cancellation of the Company's debt
to Wise and Shepard for legal services rendered. The shares were issued pursuant
to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.

In July 1996, the Company issued 150,000 shares to Manhattan West, Inc.
for consulting services. The issuance of such shares was exempt under Section
4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

In August 1996, the Company granted an option to Michael Preston to
purchase, at an exercise price of $2.50 per share, 60,000 shares of the
Company's Common Stock. The grant of such option was exempt under Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated thereunder.

In September, 1996, the Company sold 151,515 shares of Common Stock at
a price of $3.30 per share to Business Systems Consultants Ltd., an accredited
investor. The shares were issued pursuant to Section 4(2) of the Securities Act
of 1933 and Regulation D promulgated thereunder.

In an offering that terminated on November 18, 1996, the Company sold
77,500 shares of Common Stock at a price of $3.30 per share (a total of $255,750
of offering proceeds). The offering was made on behalf of the Company by Capital
Growth International LLC as placement agent. The shares were issued to a limited
number of accredited investors. The issuance of such shares was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder. The Company paid total commissions
(including non-accountable expenses), of $25,575 and also issued to the
placement agent, as a portion of its compensation, warrants to purchase, at a
price of $3.30 per share, up to 30,706 shares of Common Stock. The placement
agent's warrants were issued pursuant to Section 4(2) of the Securities Act of
1933 and Regulation D promulgated thereunder.

In November 1996, the Company sold 540,000 shares of Common Stock at a
price of $2.50 per share to Business Systems Consultants Ltd., an accredited
investor. The shares were issued pursuant to Section 4(2) of the Securities Act
of 1933 and Regulation D promulgated thereunder.

<PAGE> 15
In November 1996, the Company granted options to purchase 1,045,000
shares of Common Stock to officers, employees and consultants. Options to
purchase 1,000,000 of the shares were granted under the Company's 1995 Stock
Option Plan. The grant of such options was exempt under Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder.

In November, 1996, the Company issued 16,250 and 6,955 shares of Common
Stock respectively to Business Systems Consultants Ltd. and Mr. Michael Preston
in consideration of their having made bridge loans to the Company. The shares
were issued pursuant to Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder.

ITEM 6. 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.

GENERAL

The following discussion and analysis relates to the financial
condition and results of operations of the Company for the two years ended
December 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, insufficient revenues and other reasons. The Company effected a
recapitalization in October 1995 in order to be able to improve its liquidity
and finance its future expansion by subsequent offerings of shares of its Common
Stock. After the recapitalization and until December 31, 1996, the Company
raised approximately $6.2 million in cash (net of certain expenses) from the
private sale of its Common Stock and converted approximately $1.7 million of its
debt into equity, the proceeds of which were used primarily for working capital.

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 later in 1997,
has launched a limited televised marketing program to increase its independent
sales force, and plans to increase its direct mail activity. The Company has
also, in November 1996, signed a mutually exclusive agreement with Kaire
International, a multi-level marketing company, to supply telephone service to
that company's registered associates and through those associates to the public
at large. In January 1997, the Company signed a mutually exclusive agreement
with National Benefits Consultants, LLC ("NBC"), a company in alliance with
Deloitte & Touche LLP, under which NBC will market the Company's
telecommunications services to audit clients of Deloitte & Touche LLP and other
commercial entities.

RESULTS OF OPERATIONS

THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 31, 1995

Gross revenues for the twelve months ended December 31, 1996 were
$5,320,000 as compared to $8,364,000 for the twelve months ended December 31,
1995. The Company attributes the decrease of 36% 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.

Management plans to resume the active pursuit of new customers in 1997
if sufficient funds are available for such purpose. The Company intends to
increase expenditures on sub-contracted telemarketing and direct mail activities
as well as establish its own in-house telemarketing facility.

The Company has launched a limited televised marketing program to
increase its independent sales force. In May 1996, the Company, through its
wholly owned subsidiary, Long Distance Direct Marketing, Inc. entered into an
arrangement

<PAGE> 16
with Guthy-Renker Distribution, Inc., an infomercial producer and promoter, to
produce and market a thirty minute infomercial selling the right to become an
independent sales representative of the Company. Under this contract, the
Company is responsible for financing the cost of production of the infomercial
program, while Guthy-Renker is responsible for financing both the cost of media
and the costs of fulfilling the orders procured by the infomercial. The film was
completed, and test marketing commenced, in the last quarter of 1996. The
Company commenced broadcast of the infomercial in January 1997, with a view to
generating substantial numbers of additional independent sales representatives.
There can be no assurance, however, that such roll-out will be successful or
that representatives recruited by this method will generate significant levels
of telephone service for the Company.

In November 1996, the Company signed a mutually exclusive agreement
with Kaire International, a multi-level marketing company, to supply telephone
service to that company's registered associates and through those associates to
the public at large. There can be no assurance, however, that Kaire will be
successful in selling the Company's service to those associates or that the
associates themselves will be successful in selling such service to the public
at large.

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 is
presently in the process of obtaining certification to provide local service to
its customers.

The Company also entered the residential market in 1996. Previously,
the Company sold exclusively to commercial customers. The Company has signed an
agreement with MCI which allows the "LECs" (Local Exchange Carriers) to bill and
collect on behalf of the Company. It is anticipated that the majority of new
business generated from the Company's televised marketing program will be
residential where customers prefer to receive both local and long distance usage
on one monthly bill. The Company believes that commercial customers are more
open to receiving separate bills for local and long distance service.

Management believes that the Company's systems, which were further
upgraded in 1995 to provide quicker response times for customer service and
collection functions, are capable of supporting the anticipated growth in the
Company's revenues. There can be no assurance, however, that the Company's
systems will be capable of handling such growth, if any.

Gross profit was $1,660,000 and $2,123,000 for the twelve months ended
December 31, 1996 and 1995, respectively. As a percentage of net sales, the
gross profit margins for the twelve months ended December 31, 1996 and 1995 were
31% and 27%, respectively. The percentage increase is due to two factors:
extremely favorable pricing received by the Company under its 1996 contract with
MCI; and the loss of the Company's largest customer, L.C. Wegard and Company, in
October 1995. Since the Company had granted promotional rebates to this customer
in 1995, the result was 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 Company's previous contract with AT&T dated September 1, 1995,
encompassed both outbound and inbound service and was set at a fixed term of
four years with a one-year extension. The Company recently entered into a new
four-year contract tariff with AT&T -- which superseded all previous contracts
with AT&T -- which became effective March 1, 1997 for the supply of inbound and
outbound telephone service. The Company's minimum quarterly purchase requirement
remains constant at $1,200,000 in years one to three and increases to $1,475,000
in year four. Failure to achieve the minimum will require payment of the
shortfall by the Company. Under the contract tariff, the Company is obligated to
make payments equal to its minimum purchase requirement for the

<PAGE> 17
outstanding term of the agreement if there is an early termination thereof. The
Company has received more favorable pricing from AT&T on both domestic and
international usage under the new contract. In addition, AT&T has agreed to
issue a credit waiving the entire cumulative shortfall charged under the
previous contract (approximately $2.3 million as of December 31, 1996, none of
which has been reflected in the Company's financial statements included herein)
within thirty days after the Company discharges its past due obligation to AT&T
of $140,000, which amount is scheduled to be paid by June 1, 1997.

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, which was amended in September 1996, is subject to an
eighteen 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 eight months of the ramp period, the Company has no minimum
purchase obligations. During the ninth through twelfth months, the Company is
obligated to purchase $250,000 of usage per month; during the thirteenth through
fifteenth month, $500,000; during the sixteenth through eighteenth month,
$750,000; 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 MCI 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. Since this six month period has expired with no notice
of termination by either party, the agreement is to run for the full forty-eight
(48) month term.

Prior to February 28, 1996, MCI had been unable to provision the
Company's customers. Subsequent to March 31, 1996, MCI commenced providing
service and the benefit of this was reflected in the Company's revenues
beginning in the second quarter. 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 $380,000 and $519,000 for the twelve
months ended December 31 1996 and 1995, respectively. As a percentage of gross
sales, sales and marketing expenses were 7% and 6% for the twelve months ended
December 31, 1996 and 1995, respectively. The percentage increase is
attributable partially to lower sales in 1996 and partially to one-time
adjustments made at September 30, 1995. The Company wrote off amounts due one of
its telemarketers of $109,816 after it ceased doing business with this
telemarketer. The Company also wrote off $75,000 of commission payable to its
independent sales agents who are no longer active. Management plans to resume
its acquisition of accounts upon receipt of adequate additional funding and
plans to pursue marketing techniques more aggressively to increase its customer
database and revenues. The Company intends to establish its own in-house
telemarketing facility, has launched a televised marketing program during 1996
to increase its independent sales force and has resumed its direct mail
activity.

General and administrative expenses were $2,942,000 and $2,700,000 for
the twelve months ended December 31, 1996 and 1995 respectively. As a percentage
of gross sales, general and administrative expenses for the twelve months ended
December 31, 1996 and 1995 were 55% and 32% respectively. Total general and
administrative expenses were reduced by $108,000 at December 31, 1996, which
represented writeoff of amounts payable to two former owners of the Company when
litigation was settled in the third quarter. The principal elements which
contributed to the increase in general and administrative expenses are mainly
related to the Company's expansion of its resources in anticipation of increased
levels of sales, and expenditures incurred in connection with the Company's plan
to significantly reduce its levels of debt by December 31, 1996. Costs incurred
in 1996, but not in 1995 include increased audit and financial printing fees due
to heavier SEC reporting requirements and increased legal fees incurred to
settle outstanding litigation.

Interest expense for the twelve months ended December 31, 1996 and 1995
was $749,000 and $376,000 respectively. For the twelve months ending December
31, 1995, 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. The note payable related to the partnership buy
out was paid off in the third quarter of 1996 when litigation was settled. In
addition, a majority of the Company's outstanding loans were converted to
equity. In the last two quarters

17
<PAGE> 18
of 1996, shares were issued to shareholders of the Company in consideration for
loans made to the Company. Non-cash interest expense in the amount of $553,000
was recorded as a result of these transactions. Loans payable in the amount of
$500,000 were converted to equity during the first three quarters of 1996, while
another $850,000 of loans were converted to equity in the last quarter of 1996.
Interest expense for the twelve months ended December 31, 1996 also includes
interest paid to taxing authorities as a result of a program undertaken by the
Company to discharge old outstanding tax liabilities.

The Company incurred a net loss of $2,401,000 for the twelve months
ended December 31, 1996 compared to a net loss of $1,875,000 for the twelve
months ended December 31, 1995. For the twelve months ending December 31, 1995,
costs of $407,000 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 and are non-operational in nature. For the twelve months ended December 31,
1996, non-cash interest expense in the amount of $553,000 was recorded when
shares were sold to shareholders of the Company as consideration for such
shareholders making loans to the Company. This expense is non-recurring and
non-operational in nature.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Company had positive working capital of
$975,429 compared to negative working capital of $3,485,246 at December 31,
1995. The Company experienced cash constraints throughout 1995 and nearly all of
1996 as a result of the abandonment of its plans to effect an initial public
offering, insufficient revenues and other factors. Due to these cash
constraints, management was 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. To deal with
this problem the Company took steps to improve its liquidity by effecting a
recapitalization in October, 1995 which enabled it to undertake private
placements of its common stock in the last quarter of 1995 and throughout 1996.

In addition to selling shares of its common stock to provide required
working capital, and as part of the recapitalization, a majority of the
Company's loans which had been outstanding at December 31, 1994 were converted
to equity at December 31, 1995. All other loans were either repaid or converted
into equity prior to December, 1996. In the third quarter of 1996, litigation
related to a buy out of two former partners was settled, and, as a result, the
corresponding actual and contingent indebtedness was canceled.

ITEM 7. Financial Statements

18
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS

Page

INDEPENDENT AUDITORS' REPORT OF ADELMAN KATZ AND MOND, LLP 20

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 21

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1996,1995 AND 1994 22

STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 23

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 24

NOTES TO FINANCIAL STATEMENTS 25

<PAGE> 20
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Long Distance Direct Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Long Distance
Direct Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Long Distance Direct
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the result
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has experienced significant
recurring losses from operations and has an accumulated deficit, both of which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As discussed in Note 5, the Company did not meet certain minimum purchase
requirements with it's primary supplier. The supplier has agreed to waive such
commitments under certain conditions.

New York, N.Y.
March 21, 1997

<PAGE> 21
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 962,471 $ 207,666
Accounts receivable (net of allowance for doubtful accounts)
(Notes 2 and 5) 1,125,986 1,103,903
Loans receivable - officers (Note 10) 260,735 -0-
Other current assets 924,431 93,229
----------- -----------

Total Current Assets 3,273,623 1,404,798
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 156,926 54,856
Computer equipment and software 257,108 196,764
Leasehold improvements 91,720 38,720
----------- -----------
505,754 290,340
Less: accumulated depreciation 193,576 129,203
----------- -----------
312,178 161,137

OTHER ASSETS 129,623 61,790
----------- -----------
$ 3,715,424 $ 1,627,725
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Notes payable - current (Note 6) $-0- $ 1,165,000
Accounts payable 1,453,796 2,370,081
Accrued expenses 353,681 577,576
Sales and excise taxes payable (Note 5) 490,716 703,143
Loans payable - officers (Note 10) -0- 74,244
----------- -----------
Total Current Liabilities 2,298,193 4,890,044
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)

STOCKHOLDERS' EQUITY
Common stock - par value $.001 per share;
authorized 30,000,000 shares 6,598 3,798
Additional paid in capital 8,477,420 1,429,434
Accumulated deficit (7,066,787) (4,665,551)
----------- -----------
1,417,231 (3,232,319)
Less: Subscriptions receivable -0- (30,000)
----------- -----------
Total Stockholders' Equity 1,417,231 (3,262,319)
----------- -----------
$ 3,715,424 $ 1,627,725
=========== ===========
</TABLE>

See notes to consolidated financial statements.

21
<PAGE> 22
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 5,319,923 $ 8,363,949 $ 9,527,497

CUSTOMER REBATES AND REFUNDS 9,686 377,547 444,998
----------- ----------- -----------
NET REVENUES 5,310,237 7,986,402 9,082,499

COST OF SERVICES 3,650,162 5,862,665 6,257,686
----------- ----------- -----------
Gross Profit 1,660,075 2,123,737 2,824,813
----------- ----------- -----------
OPERATING EXPENSES
Sales and marketing 379,670 519,411 1,322,546
General and administrative 2,941,725 2,700,451 2,554,503
----------- ----------- -----------
Total Operating Expenses 3,321,395 3,219,862 3,877,049
----------- ----------- -----------
LOSS FROM OPERATIONS (1,661,320) (1,096,125) (1,052,236)
----------- ----------- -----------
OTHER EXPENSES (INCOME)
Interest expense 748,711 375,820 173,996
Interest income (8,795) (4,594) (5,515)
Failed IPO costs -0- 407,572 -0-
----------- ----------- -----------
Total Other Expenses (Income) 739,916 778,798 168,481
----------- ----------- -----------
NET LOSS $(2,401,236) $(1,874,923) $(1,220,717)
=========== =========== ===========
NET LOSS PER SHARE $(.54) $(.55) $(.36)
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

22
<PAGE> 23
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
Common Stock Additional Paid Accumulated
Shares Amount in Capital Deficit
--------- ------ ----------- -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1993 3,400,000 $3,400 $ 611,728 ($1,569,911)

Net loss - December 31, 1994 -- -- -- (1,220,717)
--------- ------ ----------- -----------
Balance - December 31, 1994 3,400,000 3,400 611,728 (2,790,628)

Accrual of expenses, payable in stock,
in connection with reverse acquisition -- -- (69,000) --

Par value assigned to shares of common
stock issued in private placement, net
of expenses of $306,397 397,835 398 886,706 --

Net loss - December 31, 1995 -- -- -- (1,874,923)
--------- ------ ----------- -----------
Balance - December 31, 1995 3,797,835 3,798 1,429,434 (4,665,551)

Par value assigned to shares of common
stock issued, net of expenses of
$1,078,050 2,799,991 2,800 7,047,986 --

Net loss - December 31, 1996 -- -- -- (2,401,236)
--------- ------ ----------- -----------
Balance - December 31, 1996 6,597,826 $6,598 $ 8,477,420 ($7,066,787)
========= ====== =========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE> 24
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($2,401,236) ($1,874,923) ($1,220,717)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 64,372 54,580 45,905

Amortization of note discount -0- 116,000 52,000

Imputed interest on personal guarantee -0- -0- 2,000

Financing and other expenses 584,263 49,793 -0-

Provision for doubtful accounts 222,754 310,953 325,634

Forgiveness of interest on partnership buy-out (55,000) -0- -0-

Changes in assets and liabilities:
(Increase) decrease in accounts receivable (244,837) 539,720 (1,388,937)

(Increase) decrease in other current assets (674,952) 252,718 (282,718)

(Increase) decrease in other assets (67,833) 260,827 (302,013)

Increase (decrease) in accounts payable (884,878) 223,398 1,174,456

Increase (decrease) in accrued expenses 154,893 (74,946) 304,874

Increase (decrease) in sales and excise taxes payable (212,427) (40,530) 282,030
----------- ----------- -----------
Total Adjustments to Net Loss (1,423,431) 1,692,513 213,231
----------- ----------- -----------
Net Cash Used in Operating Activities (3,824,667) (182,410) (1,007,486)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (215,414) (38,907) (72,284)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) of notes payable (500,000) (155,000) 935,298

Proceeds (payment) of related party loans (319,979) (112,076) 106,602

Proceeds from private placements 6,692,915 776,209 -0-

Payment of private placement costs (1,078,050) (132,165) -0-
----------- ----------- -----------
Net Cash Provided by Financing Activities 4,794,886 376,968 1,041,900
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 754,805 155,651 (37,870)

CASH - Beginning of year 207,666 52,015 89,885
----------- ----------- -----------
CASH - End of year $ 962,471 $ 207,666 $ 52,015
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

24
<PAGE> 25
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

1. ORGANIZATION AND BUSINESS

The consolidated financial statements consist of the accounts of Long
Distance Direct Holdings, Inc. ("LDDH") and its wholly owned subsidiaries,
as follows: Long Distance Direct, Inc. ("LDDI") and Long Distance Direct
Marketing, Inc. ("LDDM") referred to collectively as the "Company".

All significant intercompany balances and transactions have been eliminated
in consolidation.

LDDH, which was formerly known as Golden Ark, Inc. was inactive until
October 6, 1995, when it acquired all of the outstanding stock of LDDI in
exchange for 3,000,000 shares of LDDH and LDDI became a wholly owned
subsidiary of LDDH. LDDI is a New York corporation which was formed in 1991
for the purpose of acting as the general partner of Long Distance Direct
L.P. ("LDDLP"), a New York limited partnership formed at the same time for
the purpose of carrying on the business of a non-facilities based re-seller
of long-distance telephone services. On October 5, 1995, LDDI acquired all
of the partnership interests of LDDLP in exchange for 3,218,821 shares of
common stock of LDDI. This transaction was accounted for as a change in form
of organization. Prior to its acquisition of LDDI, Golden Ark, Inc. effected
a 1 for 1.4700477 forward split of its common stock. After its acquisition
of LDDI, Golden Ark, Inc. changed its name to Long Distance Direct Holdings,
Inc.

For accounting purposes, the acquisition of the common stock of LDDI has
been treated as a recapitalization of LDDI with LDDI as the acquirer
(reverse acquisition). Stockholders' equity and loss per share data has
been restated to give retroactive recognition to the recapitalization.

The consolidated financial statements include the combined activities of
LDDI and LDDLP for the year ended December 31, 1994 and for the period from
January 1, 1995 through October 5, 1995. Therefore no pro-forma data has
been presented.

The Company is a non-facilities based reseller of outbound and inbound
long-distance telephone, teleconferencing, cellular long-distance and
calling card services to commercial customers. All of the services sold by
the Company through December 31, 1995 were provided by AT&T. The Company
commenced operations with MCI during 1996. The Company signs up customers
and provisions them onto the networks of AT&T and MCI, which provide the
actual transmission of service. The Company does not own or lease any
telephone equipment or participate in the call completion process.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Allowance for Doubtful Accounts

Accounts receivable are net of allowance for doubtful accounts of $318,976
and $163,149 as of December 31, 1996 and 1995, respectively. The Company
estimates an allowance based upon various factors, including credit risk and
industry standards.

25
<PAGE> 26
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues, Collections and Cost Recognition

Revenues are recognized as service is provided to the Company's customers.
Through December 31, 1995, the Company operated under a billing service
agreement with an affiliate of AT&T. Under the agreement, AT&T's affiliate
provided billing services on behalf of the Company. Subsequent to December
31, 1995, the Company contracted with another billing company to provide
billing services. The Company's customers make payments directly to the
Company through a lock-box account. Costs are recognized based on monthly
network usage billings received from AT&T and MCI.

Accounting Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets,
liabilities, income and expenses and disclosures of contingencies.
Future events could alter such estimates in the near term.

Property and Equipment

Property and equipment are stated at cost. Depreciation of furniture and
computer equipment is provided using the straight-line method for financial
reporting purposes based on their estimated useful lives. Depreciation of
leasehold improvements is provided using the straight-line method for
financial reporting purposes based on their estimated useful lives or the
life of the lease, whichever is shorter. Depreciation and amortization
expense was $64,372, $54,580 and $45,905 for the years ended December 31,
1996, 1995, and 1994, respectively.

Initial Public Offering Costs

The Company incurred costs of approximately $407,000 in connection with an
initial public offering which was not successfully completed in 1995. As a
result, all such costs were charged to expense for the year ended December
31, 1995.

Private Placement Costs

Costs incurred in connection with private placements of common stock are
recorded as a reduction in additional paid in capital.

MCI Usage Credit

During 1996, the Company received service credits from MCI, in amounts not
to exceed $1,000,000, due to MCI's inability to provide service under the
original contract with MCI (Note 5). Such credit is applicable to the
Company's current usage. Credits in the amount of $208,000 are recorded as
a reduction in actual network charges incurred during 1996.

26
<PAGE> 27
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Weighted Average of Common Shares

Earnings per share are based on the weighted average number of shares
outstanding (4,467,972 in 1996, 3,416,577 in 1995 and 3,400,000 in 1994).
The assumed exercise of stock options and warrants are anti-dilutive and
therefore is not considered a common stock equivalent.

Direct-Response Advertising

The costs of direct-response advertising are capitalized and amortized over
the period during which future benefits are expected to be received.

Concentrations of Risk

AT&T and MCI are currently the sole providers of the long distance
telecommunications services that the Company resells to it's customers. The
future business of the Company is currently entirely dependent upon the use
of the AT&T and MCI networks. Changes in tariffs, regulations, or policies
by AT&T and MCI, or the Company's failure to maintain or renew, or a
termination of, such agreements would materially adversely affect the
Company's financial condition and could result in a cessation of operations
by the Company.

The Company's customers are commercial businesses and are not concentrated
in any particular geographic area of the United States.

Preferred Stock

The Company's Articles of Incorporation authorizes the issuance of
10,000,000 shares of preferred stock, $0.001 par value and provide that the
rights, preferences and privileges, of the preferred stock shall be
determined by the Board of Directors. The Board of Directors has not taken
any action to determine the rights, preferences or privileges of the
preferred stock nor has any preferred stock been issued. There are no
present plans to issue any shares of preferred stock.

3. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company has sustained losses since
inception and as a result has experienced deficiencies in cash flows from
operations and has an accumulated deficit of $7,066,787 at December 31,
1996.

<PAGE> 28
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

3. BASIS OF PRESENTATION (continued)

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.

Management is taking the following steps to revise its operating results and
financial position, which it believes will be sufficient to provide the
Company with the ability to continue in existence:

- Increased sales volume through sub-contracted telemarketing and direct
mail activities and establishment of an in-house telemarketing facility.

- Private placement in early 1997.

- Televised marketing program to recruit additional independent sales
representatives.

- Strategic alliances for multi-level and other concentrated marketing
programs.

4. PRIVATE PLACEMENTS

The Company sold approximately 1,899,000 shares of common stock through
private placements during November and December of 1995 and throughout the
year ended December 31, 1996, at prices ranging from $2.50 per share to
$3.30 per share.

5. COMMITMENTS AND CONTINGENT LIABILITIES

Contract Tariffs with AT&T - Minimum Commitments

Effective September 1, 1995, the Company entered into an individually
negotiated contract for a fixed term of four years with a one year extension
at the Company's option. The agreement called for minimum purchase
commitments of $2,400,000 on a semi-annual basis and $4,800,000 on an annual
basis. The agreement also required minimum purchases with respect to new
business usage of $240,000 on a semi-annual basis and $480,000 on an annual
basis.

In February 1997, the Company signed a four-year agreement with AT&T,
effective March 1, 1997, that superseded the contract dated September 1,
1995. The Company's minimum quarterly purchase commitment is $1,200,000 in
years one to three and increases to $1,475,000 in the fourth year. Failure
to achieve the minimum will require payment of the amount of the shortfall.
The agreement is not renewable.

Contingent Liability to AT&T - Failure to Meet Minimum Purchase Obligations

As discussed above, the previous agreement with AT&T called for certain
minimum usage by the Company. The Company did not meet such minimum usage
requirements. The shortfall (the difference between actual usage and the
minimum requirement) asserted by AT&T was

28
<PAGE> 29
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)

Contingent Liability to AT&T - Failure to Meet Minimum Purchase Obligations
(continued)

approximately $2,300,000, of which approximately $965,000 was billed as of
December 31, 1996, with the balance to be billed. On February 6, 1997, the
Company entered into a release and settlement agreement with AT&T whereby
the Company will be released from the entire $2,300,000 obligation subject
to certain conditions, which include payment by the Company of a total of
$320,000 (the amount of the Company's obligations as of November 1, 1996,
excluding the shortfall) over a six (6) month period starting January 1,
1997. The Company has made payments of $180,000 toward this balance Also,
the Company is required to be current on all of its future invoices for
ongoing service. Upon full payment of this amount, AT&T will credit the
Company's account for the full amount of the shortfall. The Company's
obligations under the release agreement are secured by a lien on it's
accounts and accounts receivable. The Company's failure to make any and
all payments on a timely basis would constitute a default under the
settlement agreement and could result in termination of service by AT&T.
These financial statements do not include a provision for the shortfall
amount.

Billing Disputes

For December 1996, the Company was billed approximately $570,000 by AT&T for
certain usage by an unauthorized user of a phone card issued by the Company.
The Company has taken the position that its documentary material with
AT&T relating to credit card fraud demonstrates that its liability for
fraudulent use is limited to $500.00. AT&T has notified the Company that
it is their position that the Company is responsible for the full amount of
the charges. The outcome of this issue is uncertain and the effect of this
dispute, if any, on the Company's current obligations as set forth in the
aforementioned settlement agreement, has not been determined. Accordingly,
these financial statements do not contain a provision for this liability.

Carrier Agreement with MCI - Minimum Commitments

On March 1, 1996, the Company entered into an agreement with MCI under which
the Company is authorized to resell various MCI services. This agreement
superseded a prior agreement dated August 1, 1995 under which MCI was unable
to provide service.

In September of 1996, the Company signed an amendment to its contract with
MCI which extends the initial ramp period and consequently, the term of the
original contract. The amended contract affords the Company an eighteen (18)
month ramp period followed by a thirty (30) month service period. During the
first eight months of the ramp period, the Company has no minimum purchase
obligations. During the ninth through twelfth months, the Company is obliged
to purchase $250,000 of services per month; during the thirteenth through
fifteenth month $500,000; during the sixteenth through eighteenth month,
$750,000; and during

29
<PAGE> 30
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)

Carrier Agreement with MCI - Minimum Commitments (continued)

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
fifteen (15) percent of the difference between the amount used and the
respective minimum monthly requirement.

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 1996 contract.

Joint Venture Agreement

The Company has entered into a joint venture agreement with a leading
television production company to launch a marketing program based on
broadcast media. The Company expended approximately $500,000 during 1996 for
production and origination costs, with all media expenditures being borne by
its joint venture partner. All such costs have been capitalized and will be
amortized over the estimated useful life, starting in 1997.

Installment Obligation - New York State Taxes

The State of New York Department of Taxation & Finance has filed two
separate warrants against the Company evidencing judgment liens for
uncontested tax liabilities. The Company has negotiated a payment plan with
the State of New York. The Company is making the required payments under the
plan and the warrants will be released when all required payments have been
made.

Installment Obligation - Federal Excise Taxes

During 1993, 1994 and the first quarter of 1995, the Company did not remit
payments for Federal excise taxes which were due to the Internal Revenue
Service. The Company entered into an installment agreement with the Internal
Revenue Service for the payment of such taxes. The agreement required
monthly payments of $34,000 until the total liability, including taxes and
interest had been satisfied. Penalties were waived by the Internal Revenue
Service. The Internal Revenue Service has filed a tax lien in connection
with this obligation, which will be released upon the satisfaction of all
amounts due under the agreement. As of September 1996, the Company had made
all of its payments under the payment plan. As of December 31, 1996, the
Company was awaiting a final determination from the Internal Revenue
Service as to the satisfaction of its liability under this agreement.

30
<PAGE> 31
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)

Leases

The Company conducts its operations in leased facilities under a
noncancellable operating lease expiring in 2000. The Company also leases
automobiles and equipment under noncancellable operating leases expiring in
2001. The minimum rental commitments under operating leases are as follows:

<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $285,924
1998 270,177
1999 215,060
2000 198,224
2001 3,416
--------
Total Minimum Payments Required $972,801
========
</TABLE>

Rent expense charged to operations was $91,688, $100,975 and $98,868 for the
years ended December 31, 1996, 1995 and 1994, respectively.

6. NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C>
Note payable to Bank of New York (a) $ 500,000

Notes payable to two former partners, issued in
connection with Partnership buy-out (b) 555,000

Note payable, bearing interest at 20%, payable
in six (6) equal monthly installments (c) 110,000

----------
1,165,000
Less: current portion 1,165,000
----------
$ -0-
==========
</TABLE>

31
<PAGE> 32
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

6. NOTES PAYABLE (continued)

(a) Note Payable - Bank

On October 28, 1994, the Company borrowed $500,000 from the Bank of New
York, pursuant to a General Loan Security Agreement, with interest
payable monthly at a rate equal to the prime rate plus one-half (1/2)
percent. The loan was secured by a $500,000 certificate of deposit
which was issued by the bank to a shareholder of the Company. The
shareholder entered into an agreement with the Company under which it
agreed to subscribe to 166,667 shares of the Company's common stock at
$3.00 per share. On November 18, 1996, the stockholder purchased
166,667 shares for $500,000 and, on the same date, the bank loan was
repaid in full.

(b) Notes Payable - Partnership Buy-Out Agreement

On April 6, 1993, certain officers and LDDI entered into a buy-out
agreement to purchase the interests of two (2) partners in LDDLP.

A dispute arose with respect to the agreement, and on September 20,
1996 the parties entered into an agreement to settle pending
litigation. In accordance with the terms of the settlement, the Company
paid the sellers $500,000 in settlement of the litigation and as full
satisfaction of all remaining obligations under the buy-out agreement.
As a result of the settlement, the Company recorded cancellation of
indebtedness income of approximately $108,000.

Pursuant to a loan made on December 6, 1994, the Company borrowed an
aggregate principal amount of $200,000 from one lender. The note was
evidenced by a promissory note, was payable in six (6) equal monthly
installments starting April 6, 1995, and bore interest at a rate of 20%
per annum. The notes were personally guaranteed by certain officers of
the Company. Prior to December 31, 1995 the lender converted $90,000 of
principal into shares of the Company's common stock at a price of $3.00
per share. In August 1996, an officer and shareholder of the Company
paid the lender $229,330, representing the unpaid principal of
$110,000, and accrued interest and fees of $119,330, in consideration
of the lender granting the shareholder the benefit of the lender's
interest in all such amounts owed by the Company.

32
<PAGE> 33
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

7. STOCK OPTION PLAN

During 1995, the Company adopted the 1995 Stock Option Plan (the "Stock
Option Plan"), pursuant to which key employees of the Company who have been
selected as participants are eligible to receive awards of options to
purchase common shares.

Options granted under the Stock Option Plan may be Incentive Stock Options
("ISOs"), within the meaning of Section 422 of the U.S. Internal Revenue
Code, as amended (the "Code"), or non-qualified stock options ("NQSOs"). The
exercise price of the options will be determined by the Committee when the
options are granted, subject to a minimum price in the case of ISOs of the
fair market value (as defined in the Stock Option Plan) of the common shares
on the date of grant and a minimum price in the case of NQSOs of the par
value of the common shares. In the discretion of the Committee, the option
exercise price may be paid in cash or in common shares or other property
having fair market value on the date of exercise equal to the option
exercise price, or by delivering to the Company an amount of sale or loan
proceeds sufficient to pay the exercise price.

A summary of stock option activity for the years ended December 31, 1996 and
1995 is as follows:

<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
--------- ------------
<S> <C> <C>
Granted 1,000,000 $ .001
Exercised -0-
Cancelled -0-
Outstanding, December 31, 1995 1,000,000 $

Granted 1,000,000 $3.30
Exercised 10,000 .001
Cancelled -0-
Outstanding, December 31, 1996 1,990,000
</TABLE>

Subsequent to December 31, 1996, options to purchase 270,000 shares of
common stock were exercised at $.001 per share. In addition to the options
issued under the Stock Option Plan, the Company granted an additional
105,000 options to purchase shares to certain parties.

8. INCOME TAXES

For the period from January 1, 1993 through October 5, 1995, LDDLP operated
as a limited partnership for Federal and State income tax purposes.
Accordingly, all of the partners were required to report their share of the
Company's loss on their respective Federal and State income tax returns.

At December 31, 1996, the Company had net operating loss carryforwards for
financial and U.S. Federal income tax purposes of approximately $7,000,000,
which are available to offset

<PAGE> 34
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

8. INCOME TAXES (continued)

future taxable income and begin to expire in the year 2007. The utilization
of such losses against future profits may be limited, dependent on ownership
changes in the Company.

Deferred taxes have not been recorded as the temporary differences,
consisting primarily of differences related to the method of recognizing
bad debts and depreciation, are not considered material by management.

9. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Cash paid during the year for interest $ 119,588 $ 55,151 $3,719
Private placement costs accrued -0- 174,232 -0-
Conversions of debt to equity 1,350,000 337,500 -0-
Financing and other expenses paid in stock 584,263 -0- -0-
Liabilities paid in stock 100,407 -0- -0-
Assets acquired for stock 156,250 -0- -0-
</TABLE>

10. RELATED PARTY TRANSACTIONS

Officers Loans

Loans receivable from officers includes amounts paid to officers who are
principal owners of the Company. Such amounts are non-interest bearing and
have no specific terms regarding repayment. Officers loans are shown net
of accrued compensation of $180,000 to such officers.

As of December 31, 1995, loans payable to officers are non-interest bearing
and have no specific terms regarding repayment.

Shareholder Loans

In March 1996, the Company entered into an agreement with a shareholder of
the Company, pursuant to which the shareholder agreed to loan $500,000 to
the Company. The agreement provided that the shareholder may convert all
(but not less than all) of the loan into shares of the Company's common
stock at a price of $3.30 per share at any time prior to the earlier of
December 31, 1996 or the date on which the Company's common stock is listed
for trading on NASDAQ. As consideration for the loan, the Company agreed to
issue 150,000 shares of

<PAGE> 35
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 1996 AND 1995

10. RELATED PARTY TRANSACTIONS (continued)

Shareholder Loans (continued)

common stock to the shareholder, which is recorded as interest expense in
the amount of $495,000 in 1996, and to pay the shareholder a fee equal to
1.5% of the first $50 million of revenues and 1% of revenues in excess of
$50 million received by the Company from the customer billings generated by
sales representatives recruited via the 1997 infomercial during the first
two (2) years any revenue is received from such infomercial. In September
1996, the shareholder converted the entire amount of the loan into 151,515
shares of common stock.

The Company entered into agreements with two (2) shareholders on August 1,
1996, pursuant to which the shareholders agreed to loan $350,000 and
$150,000, respectively, to the Company. The loans bear interest at the rate
of 12% per annum and are repayable within 60 days after receipt of the loan
proceeds. The agreements provided that the loans were convertible into
shares of the Company's common stock at a price of $2.50 per share. As
additional consideration for the loans, the Company issued 23,205 shares of
common stock, which is recorded as interest expense in the amount of $58,000
in 1996. The loan in the amount of $350,000 was converted into 140,000
shares of common stock. The loan in the amount of $150,000 was repaid prior
to December 31, 1996.

11. OUTSTANDING WARRANTS

At December 31, 1996, the Company had outstanding warrants to purchase
828,088 shares of the Company's common stock at prices ranging from $3.00
to $4.00 per share. The warrants become exercisable at various dates through
1999.

12. 401(k) PLAN

The Company maintains a 401(k) plan that covers all eligible employees.
The Company matches a percentage of employee contributions, up to a set
percentage of compensation, as stated in the plan.

<PAGE> 36
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

A change in accountants was previously reported in a report on Form
8-K, as amended, dated April 30, 1996 and in a report on Form 8-K dated May 10,
1996, filed by the Company.

PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons

The table below sets forth the names, ages and titles of the persons
who are the directors and executive officers of the Company.

NAME AGE POSITION
---- --- --------

Steven L. Lampert 47 President Chief Executive Officer and
Chairman of the Board

Michael D. Preston 51 Chief Financial Officer and Vice
President -- Finance, Secretary and
Director
Clair Alpert 54 Vice President -- Administration

Lori Colin 38 Controller

Andrea Grossman 33 Vice President -- Marketing

Rowland W. Day II 41 Director

Julian Levy 32 Director

Conrad J. Morris 64 Director

Steven Lampert is a founder of the Company and has been the Chief
Executive Officer since January 1994. He has served as President of the Company
since it commenced operations in December 1991. Prior to founding the Company,
Mr. Lampert served as President of Comtec, Inc., a New York-based
telecommunications corporation, from November 1985 through November 1991. Prior
to 1985, Mr. Lampert served as director of telecommunications for NBC and for
Corning Labs (formerly Metpath). Mr. Lampert has served as a director of the
Company since December 1991.

Michael Preston is a founder of the Company and has been the Vice
President -- Finance and Chief Financial Officer of the Company since January
1994. Prior to this period, Mr. Preston was retained as a consultant to the
Company commencing in December 1991. Mr. Preston has served as a director of the
Company since December 1991, and served as a director of the following other
companies, with the date of such service in parentheses: Sterling Publishing
Group PLC, a publicly-held U.K. business publishing company (1977 to September
1995; and served as Deputy Chairman from 1990 to September 1994); Broad Street
Group PLC, a publicly-held U.K. public relations and marketing services firm
(June 1977 to March 1991); Frank Usher Holdings PLC, a publicly-held U.K.
clothing manufacturer (1989 to 1990); Cadiz Land Corporation (1983 to 1987). Mr.
Preston is a United Kingdom Chartered Accountant.

Clair Alpert has been the Vice President -- Administration of the
Company since October 1993. Ms. Alpert served as Controller of the Company from
April 1992 to October 1993. Prior to joining the Company, Ms. Alpert served as
the Director of Administration and Accounting for Gross & Alpert, C.P.A., a New
York-based accounting firm, from January 1987 to March 1992.

Lori Colin has been the Controller of the Company since October 1993.
Prior to joining the Company, Ms. Colin was a Senior Accountant at Chase
Manhattan Leasing Co. from 1991 to 1993, and prior to that was an Assistant
Manager -- Accounting at Concord Leasing in Connecticut from 1985 to 1990.

Andrea Grossman has been the Vice-President Marketing of the Company
since May 1993. Ms. Grossman served as the Director of Marketing of the Company
from October 1992 to May 1993. Prior to joining the Company, Ms. Grossman was
the Database Marketing Director of JAMI Marketing Services, Inc., a New
York-based direct marketing firm, from October 1990 to October 1992. From June
1990 to October 1990, Ms. Grossman was a Consultant with The Rostmark Group, a
marketing consultancy in New Jersey, and from January 1987 to June 1990, she was
the General Manager of Webvelope Corp., a New York printing company.

Rowland Day is a partner in the law firm of Day, Campbell & McGill, the
Company's corporate counsel. He was appointed a director of the Company in
November 1996.

Julian Levy is a representative of Capital Growth International, an
investment banking firm that acted as placement agent for the Company in its
most recent previous offering of securities. He is a United Kingdom Chartered
Accountant and was appointed a director of the Company in November 1996.

Conrad Morris is a United Kingdom businessman with extensive investment
and management experience in both the United Kingdom and the United States.
Business Systems Consultants Limited, an investment company registered in
Liberia and beneficially owned by Mr. Morris' two adult daughters, is a
significant investor in the Company. He was appointed a director of the Company
in November 1996.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information regarding
compensation paid by the Company for services

36
<PAGE> 37
rendered during the fiscal years ended December 31, 1994, 1995 and 1996,
respectively, to the Company's Chief Executive Officer and Chief Financial
Officer during such period. No other executive officer of the Company holding
office in fiscal 1996 received total annual salary and bonus exceeding $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
NAME AND YEAR ANNUAL COMPENSATION UNDERLYING
PRINCIPAL ENDING OTHER ANNUAL OPTIONS
POSITION DECEMBER 31, SALARY BONUS COMPENSATION SARS (#)
-------- ------------ ------ ----- ------------ --------

<S> <C> <C> <C> <C> <C>
Steven Lampert, 1994 $250,000 -- $ 7,911(1) 0
President 1995 $150,000 -- $ 10,689(1) 250,000(2)
1996 $150,000 -- $ 11,745(1) 350,000(3)

Michael Preston, 1994 $100,000 -- $ 5,196(1) 0
Chief Financial Officer 1995 $125,000 -- $ 7,122(1) 250,000(4)
1996 $125,000 -- $ 9,092(1) 350,000(5)
</TABLE>

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

(1) Includes an allowance for automobile expenses.

(2) Options to purchase 250,000 Shares at a price of $.001 per Share were
granted to Mr. Lampert under the Company's 1995 Stock Option Plan.

(3) Options to purchase 350,000 Shares at a price of $3.30 per Share were
granted to Mr. Lampert under the Company's 1995 Stock Option Plan.

(4) Options to purchase 250,000 Shares at a price of $.001 per Share were
granted to Mr. Preston under the Company's 1995 Stock Option Plan.

(5) Options to purchase 350,000 Shares at a price of $3.30 per Share were
granted to Mr. Preston under the Company's 1995 Stock Option Plan.

OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS EXERCISE
NUMBER OF SECURITIES GRANTED TO OR BASE
UNDERLYING EMPLOYEES PRICE
NAME OPTIONS GRANTED IN 1996 ($/SH.) EXPIRATION DATE
---- --------------- ------- ------- ---------------

<S> <C> <C> <C> <C>
Steven Lampert 350,000 35% $ 3.30 10/11/2001
Michael Preston 350,000 35% $ 3.30 10/11/2001
</TABLE>

- ---------------------
No executive officer named in the Summary Compensation Table above exercised
stock options during the fiscal year ended December 31, 1996.

The following table sets forth for each person the fiscal year-end
value of unexercised options:

37
<PAGE> 38

AGGREGATED OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 1996 AND OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SHARES UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY
ACQUIRED ON VALUE OPTIONS AT 12/31/96 OPTIONS AT 12/31/96(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Steven Lampert 0 -- 600,000 0 $1,395,000 0
Michael Preston 0 -- 600,000 0 $1,395,000 0
</TABLE>

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

(1) The value of the Company's Common Stock for purposes of the calculation was
based upon the average of the bid and asked prices for the Common Stock on March
24, 1997 as reported by the OTC Bulletin Board, minus the exercise price.

STOCK OPTION PLAN

The Company has adopted a stock option plan (the "Stock Option Plan")
for its officers, directors, employees and consultants and has reserved a total
of 2,000,000 shares of Common Stock to be issued upon exercise of options
granted under the Stock Option Plan. As of March 17, 1997, options to purchase
1,000,000 shares at an exercise price of approximately $.001 per share and
options to purchase 1,000,000 shares at an exercise price of $3.30 per share had
been granted, of which 380,000 had been exercised by such date.

The Stock Option Plan will be administered by the Board. Subject to the
provisions of the Stock Option Plan, the Board will have sole discretionary
authority to interpret the Stock Option Plan and to determine the type of awards
to grant, when, if and to whom awards are granted, the number of shares covered
by each award and the terms and conditions of the award.

Options granted under the Stock Option Plan may be "incentive stock
options" ("ISOs"), within the meaning of Section 422 of the U.S. Internal
Revenue Code, as amended (the "Code"), or non-qualified stock options ("NQSOs").
The exercise price of the options will be determined by the Board when the
options are granted, subject to a minimum price in the case of ISOs equal to the
fair market value (as defined in the Stock Option Plan) of the Common Shares on
the date of grant and a minimum price in the case of NQSOs of the par value of
the Common Stock. In the discretion of the Board, the option exercise price may
be paid in cash or in Common Shares or other property having a fair market value
on the date of exercise equal to the option exercise price.

DIRECTOR COMPENSATION

Directors who are officers or employees of the Company receive no
additional compensation for service as members of the Board of Directors or
committees thereof. Directors who are not officers or employees of the Company
will receive such compensation for their services as the Board of Directors may
from time to time determine. It is anticipated that non-employee directors will
receive a fee of $500 per meeting plus expenses of attending the meeting.

EMPLOYMENT CONTRACTS

The Company has not entered into any written or formal contract with any
of the above-named executive officers.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 17, 1997 by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
Common Stock, (ii) each director of the Company, and (iii) all executive
officers and directors of the Company as a group.

38
<PAGE> 39

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS
------------------- ------------------ -------------------
<S> <C> <C>
Steven L. Lampert ........................ 1,687,065(1) 22.1%
8 Lady Godiva Way
New City, N.Y. 10956

Michael D. Preston ....................... 1,754,020(2) 22.9%
8 Oak Hill Park Mews
London NW3 7LH
England

Rowland W. Day II ........................ 458,220(3) 6.4%
3070 Bristol Street, Suite 650
Costa Mesa, CA 92626

Julian Levy .............................. 50,000(4) less than 1%

Conrad Morris ............................ 0 --

Business Systems Consultants, Ltd ........ 1,334,798(5) 19%
P.O. Box 222
31-33 Le Pollet
St. Peter Port
Gurnsey GYI 4J6
Channel Islands

All directors and officers ............... 5,454,103(6) 64%
as a group (8 persons)
</TABLE>

- -------
(1) Includes 550,000 shares issuable upon the exercise of outstanding options.

(2) Includes 610,000 shares issuable upon the exercise of outstanding options.

(3) Includes approximately 111,960 shares issuable upon the exercise of
outstanding options. Mr. Day is also a principal in the firm of Day, Campbell &
McGill, the Company's corporate counsel.

(4) Includes 50,000 shares issuable upon the exercise of outstanding options.

(5) Business Systems Consultants, Ltd. (BSC) is an investment company registered
in Liberia. BSC is beneficially owned by two adult daughters of Conrad Morris, a
director of the Company. Mr. Morris acts as an advisor to but has no beneficial
interest in BSC.

(6) Includes 1,491,960 shares issuable upon exercise of outstanding options, and
the 1,334,798 shares owned by BSC.

ITEM 12. Certain Relationships and Related Transactions.

Pursuant to the recapitalization on October 5, 1995, LDDI issued shares
of its Common Stock to the limited partners of LDDLP in exchange for their
respective partnership interests in LDDLP in a transaction exempt from the
registration requirements of the Securities Act. On October 6, 1995 LDD Holdings
acquired all of the outstanding shares of Common Stock of LDDI in exchange for
3,000,000 shares of the Company's Common Stock.

BANK OF NEW YORK LOAN

Pursuant to the terms of a Bridge Loan and Security Agreement (the "Loan
Agreement") dated August 25, 1994 between Wingmead Securities Ltd. ("Wingmead")
and Michael Preston, a Director and Chief Financial Officer of the Company, as
lenders, and LDDLP, Wingmead and Preston each agreed to make one loan to the
Partnership in the original aggregate principal amount of $250,000. The Wingmead
loan (the "Wingmead Loan") was made on August 25, 1994, and the Preston loan
(the "Preston Loan") was made on October 27, 1994. The Wingmead Loan was
evidenced by a secured promissory note (the "Wingmead Note"), and bore interest
at a rate per annum equal to the Prime Rate plus 2.0% . As collateral security
for the payment of such amounts, LDDLP granted to Wingmead a first floating lien
on all of its assets. In addition, pursuant to the terms of a Guaranty dated
August 25, 1994

39
<PAGE> 40
between Wingmead and Mr. Preston, a Director and Chief Financial Officer of the
Company, Mr. Preston personally guaranteed the payment, when due, of all amounts
owed under the terms of the Loan Agreement, and as security for such guaranty,
entered into a pledge agreement with Wingmead dated August 25, 1994 whereby he
pledged 466,382 ordinary shares of Sterling Publishing Group PLC beneficially
owned by him and the proceeds of any sale thereof to secure his obligations
under his guaranty. The Preston Loan was non-interest bearing and was repaid,
together with the Wingmead Loan, out of the proceeds of a loan from The Bank of
New York.

On October 28, 1994, the Company borrowed $500,000 from The Bank of New
York ("BONY") pursuant to a General Loan and Security Agreement (the "BONY
Note"), which bore interest at a rate per annum equal to the Prime Rate plus
.5%. Principal and interest on the BONY Note was due on April 12, 1995. The
proceeds from the BONY Note were used to pay in full the principal amount
outstanding under the Wingmead Note and the Preston Loan. There was no cost or
other effect to the Company for such prepayment.

As collateral security for the payment of the BONY Note, the Company
granted BONY a security interest in a $500,000 certificate of deposit issued by
BONY to Wingmead which had been hypothecated to the Company by Wingmead. In
addition, pursuant to the terms of a Guaranty dated October 28, 1994 between
BONY and Steven Lampert, the Chief Executive Officer and Director of the
Company, and Mr. Preston, the Chief Financial Officer and a Director of the
Company, each of Messrs. Lampert and Preston personally guaranteed the payments,
when due, of all amounts owing by the Company to BONY, which obligation was
represented by the BONY Note.

The repayment date of the BONY Note was extended until September 30,
1995 by an agreement entered into in April 1995 on terms substantially identical
to those of the original agreement dated October 28, 1994 and was subsequently
extended to November 8, 1996, at which time it was paid in full. In February
1995 Wingmead entered into an agreement with the Company under which it agreed
to subscribe for 166,667 shares of the Company's Common Stock at $3.00 per share
on July 31, 1996 or on the repayment by the Company of the BONY Note. On
November 18, 1996, Wingmead purchased 166,667 shares of the Company's Common
Stock for $500,000 cash.

BRIDGE LOANS

SERIES A LOANS. Pursuant to a series of loans made on September 30,
1994, the Company borrowed an aggregate principal amount of $177,500 from a
group of seven lenders (the "Series A Loans"). Each loan bore interest at a rate
per annum equal to the Prime Rate plus 2%, was due and payable on June 30, 1995,
and was evidenced by a secured promissory note dated as of September 30, 1994.
Pursuant to a Subordination Agreement entered into by and among LDDI, each
holder of the Series A Loans and Wingmead, each of the holders of the Series A
Loans agreed that their right to payment and security interest in the property
of LDDI would be subordinate to all indebtedness owed by LDDI to Wingmead.

The Series A Loan notes provided that any loans outstanding at the time
that the Company concluded an initial public offering or similar transaction may
at the holder's option be converted into shares of the Company's Common Stock at
the offering price together with a premium of 25% over the face value of the
loan. Loans aggregating $30,000 plus accrued interest were repaid during 1995.
Holders of the balance of the Series A Notes, aggregating $147,500, elected to
convert the amounts due to them, plus premium, into shares of the Company's
Common Stock at a price of $3.00 per share prior to December 31, 1995.

SECOND WINGMEAD LOAN. Pursuant to an agreement dated December 6, 1994,
the Company borrowed from Wingmead the sum of $200,000 (the "Second Wingmead
Loan") repayable either within ten days following an initial public offering of
the Company's stock, or, if no such offering occurred within 90 days following
the date of the agreement, in six equal installments commencing on the 120th day
following the date of the agreement. The loan, which was secured by the Loan
Agreement dated August 25, 1994 between the Company, Wingmead and Michael
Preston, and was personally guaranteed by Michael Preston and Steven Lampert,
bore interest at the rate of 20% per annum, and, in consideration for making the
Loan, the Company agreed to issue to Wingmead 20,000 shares of the Company's
Common Stock, such shares to be unregistered but to have piggy-back registration
rights in the event of a public offering of the Company's Common Stock within
twenty-four months of the date after the agreement.

In August, 1996 Michael Preston paid Wingmead a total of $229,329.86,
representing $110,000 of the Second Wingmead loan together with accrued interest
and certain fees due to Wingmead, in consideration of Wingmead's granting to Mr.
Preston the benefit of Wingmead's interest in all such amounts owing by the
Company. Wingmead had previously converted the balance of the principal due into
30,000 shares of the Company's Common Stock at the price of $3.00 per share,
prior to December 31, 1995. On

40
<PAGE> 41
November 18, 1996, the Company repaid Mr. Preston the full amount paid by him to
Wingmead for the debt owed to Wingmead by the Company.

BUSINESS SYSTEMS CONSULTANTS LOAN. On October 30, 1993, Business Systems
Consultants Limited advanced the sum of $100,000 to the Company as an
interest-free, five-year unsecured and subordinated loan, repayable at the
obligee's request after three years. Business Systems Consultants converted this
loan into shares of the Company's Common Stock at the price of $3.00 per share
prior to December 31, 1995.

SHAREHOLDER LOANS

The Company entered into an agreement with Business Systems Consultants,
Ltd. ("BSC") in March, 1996, pursuant to which BSC agreed to loan $500,000 to
the Company. The agreement provided that BSC may convert all (but not less than
all ) of the loan into shares of the Company's Common Stock at a price of $3.30
per share at any time prior to the earlier of December 31, 1996 or the date on
which the Company's Common Stock is listed for trading on NASDAQ. As
consideration for the loan, the Company agreed to issue 150,000 shares of Common
Stock to BSC and to pay BSC a fee equal to 1.5% of the first $50 million of
revenues and 1% of revenues in excess of $50 million received by the Company
from the customer billings generated by sales representatives recruited via the
infomercial produced by Guthy-Renker during the first two years any revenue is
received from such infomercial. In August, 1996, BSC elected to convert the
entire amount of the loan to equity.

The Company entered into agreements with Business Systems Consultants,
Ltd. ("BSC") and Michael Preston on August 1, 1996, pursuant to which BSC and
Mr. Preston agreed to loan $350,000 and $150,000, respectively, to the Company.
The loans bore interest at the rate of 12% per annum and were repayable within
60 days after receipt of the loan proceeds. The agreements provided that the
loans may be converted into shares of the Company's Common Stock at a price of
$2.50 per share. As additional consideration for the loans, the Company agreed
to issue to BSC and Mr. Preston, for each seven day period during which the
loans were outstanding, 1,250 shares of Common Stock and 535 shares of Common
Stock, respectively, but not less than 5,000 shares and 2,140 shares,
respectively. In addition, if the loans were not repaid prior to September 30,
1996, BSC and Mr. Preston have the option, exercisable at any time within 12
months after such repayment date, to purchase, at a price of $2.50 per share,
140,000 shares and 60,000 shares, respectively. In November 1996 BSC elected to
convert the full amount of its loan into shares of the Company's Common Stock at
a price of $2.50 per share. The loan from Mr. Preston was repaid in November
1996.

BUY OUT AGREEMENT

Pursuant to the terms of an agreement (the "Buy Out Agreement") dated
April 6, 1993 by and among Steven L. Lampert ("Lampert"), Michael D. Preston
("Preston" and collectively with Lampert, the "Buyers"), Michael Miller
("Miller"), Jeffrey Schwartz ("Schwartz" and collectively with Miller, the
"Sellers"), LDDLP, LDDI and several inactive entities (collectively with LDDLP
and LDDI, the "Entities"), the Buyers, who are officers and directors of the
Company, purchased in equal proportions all of the interests of the Sellers in
the Entities (the "Buy Out"). At the closing of the Buy Out, the Buyers paid the
Sellers an aggregate of $500,000.

In connection with the Buy Out, LDDLP obligated itself under the Buy Out
Agreement (i) to pay the Sellers an aggregate of $250,000 for their covenants
not to compete with the business of LDDLP, (ii) to pay JAMI Marketing Services,
Inc. ("JAMI"), an affiliate of the Sellers, $303,333.34, with respect to and in
cancellation of an office facilities and equipment agreement and in
consideration of services rendered, and (iii) to pay to the Sellers an aggregate
of $80,000 with respect to their capital and current accounts with LDDLP
(collectively, the "LDDLP Obligations").

In addition, the Sellers were entitled to receive Contingent Event
Payments of up to an aggregate of $750,000 upon the occurrence of (a) the sale
by either of the Buyers of all or a majority of his interests in any Entity, (b)
the sale by any Entity of all or substantially all of its assets, or (c) the
distribution (excluding compensation payments to Lampert or Preston in amounts
not exceeding $187,500 and $150,000, respectively, per year) by any Entity of
cash or property to either of the Buyers (collectively the "Contingent Events").
The Buyers were responsible for Contingent Event Payments, except in the case of
an asset sale by an Entity, in which case the Entity was responsible to the
Sellers but the Buyers were obligated to reimburse the Entity to the extent the
net proceeds of such sale were distributed to the Buyers.

A dispute arose with respect to the Buy Out Agreement and in February,
1996, LDDLP and the Buyers filed a lawsuit against the Sellers seeking
compensatory and punitive damages. The Sellers subsequently filed a separate
lawsuit against LDDLP and the

41
<PAGE> 42
Buyers to exercise their rights to receive payment under the Buy Out Agreement
and to exercise their remedies under the security agreement with respect
thereto.

On September 19, 1996, the Company, the Buyers, LDDI and LDDLP entered
into an agreement (the "Settlement Agreement") with the Sellers and JAMI to
settle the pending litigation (the "Litigation"). In accordance with the terms
of the Settlement Agreement, the Company paid Sellers $500,000 in settlement of
the Litigation and as full satisfaction of all remaining obligations under the
Buy Out Agreement, including the Contingent Event Payments; the parties signed
and delivered mutual general releases; and the Litigation was dismissed with
prejudice.

COMPANY COUNSEL

The Company has granted to members of the firm of Day, Campbell &
McGill, the Company's corporate counsel, options to purchase an aggregate of
460,000 shares of Common Stock. In addition, in connection with the Company's
agreement to sell telephone services to Kaire International, the Company agreed
to pay a finder's fee to Day, Campbell & McGill in the amount of 2.5% of the
monthly revenues collected by the Company from the sale of such telephone
services during the three-year term of its agreement with Kaire International.

RELATIONSHIP WITH ALBERDALE & CO.

Michael Preston, an officer, director and principal shareholder of the
Company, owns a 33.3% interest in Alberdale & Co., a British investment firm
whose associate company, Alberdale Partners Limited, received compensation in
connection with the sale of the Company's securities in a private placement
completed in November 1996 in which Capital Growth International, LLC acted as
the Company's placement agent.

ARRANGEMENTS WITH CAPITAL GROWTH INTERNATIONAL, LLC

In August 1996, the Company entered into a Placement Agreement with
Capital Growth International, LLC ("CGI") pursuant to which the Company agreed,
among other things, (i) to use its best efforts to cause the election to the
Company's Board of Directors of a person designated by CGI and reasonably
acceptable to the Company for a period of up to three years (CGI has designated
Julian Levy who has been elected to the Board); (ii) to retain CGI as a
financial advisor for two years and to compensate CGI at the rate of $2,500 per
month; and (iii) for a period of 24 months after the completion of the private
placement, to provide CGI with the first opportunity to negotiate and the right
of first refusal with respect to any debt or equity financings the Company may
undertake during such period.

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

(a) List of Exhibits:

2.1 Agreement and Plan of Reorganization dated October 6,
1995 between Golden Ark, Inc. (now known as Long
Distance Direct Holdings, Inc.) Long Distance Direct,
Inc. and the stockholders of Long Distance Direct,
Inc.*

3.1 Amended and Restated Articles of Incorporation of
Long Distance Direct Holdings, Inc. (formerly known
as Golden Ark, Inc.).*

3.2 Certificate of Amendment of Articles of Incorporation
of Long Distance Direct Holdings, Inc.*

3.3 Bylaws, as amended, of Long Distance Direct Holdings,
Inc.*

10.1 Buy-out Agreement between Long Distance Direct, Inc.,
and Steven Lampert, Michael Preston, Jeffrey
Schwartz, Michael Miller and JAMI Marketing Services,
Inc.*

42
<PAGE> 43

10.2 Amended Lease Agreement for Suite 1430, 1 Blue Hill
Plaza, Pearl River, New York 10965, dated December,
1996.**

10.3 Agreement with AT&T dated July, 1995 for supply of
long distance telephone service for resale.*

10.4 Agreement with MCI dated March, 1996 for supply of
long distance telephone service for resale.*

10.5 1995 Stock Option Plan.*(Spade)

10.6 Agreement with Guthy-Renker-Engler dated May 15, 1996
regarding the marketing and distribution of an
infomercial.**

10.7 Agreement with Schulberg MediaWorks, Inc. dated June
10, 1996 regarding the production of an
infomercial.**

10.8 Agreement with Kaire International, Inc dated
November, 1996 and extension thereof dated December,
1996 regarding supply of telecommunications
services.**

10.9 Agreement with National Benefits Consultants, LLC
dated January, 1997 regarding supply of
telecommunications services.**

10.10 Agreement with AT&T dated February, 1997 for supply
of long distance telephone service for resale.**

10.11 Amendment to MCI Agreement dated September 23, 1996**

21 List of Subsidiaries.**

23.1 Consent of Adelman, Katz & Mond, L.L.P.

27 Financial Data Schedule.

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

*Incorporated by reference to the Company's Form 10-K/A dated November 7, 1996
filed with the Commission on November 7, 1996.

**Incorporated by reference to the Company's Registration Statement on Form SB-2
filed with the Commission on December 17, 1996, and Amendment No. 1 thereto
filed with the Commission on March 25, 1997.

*(Spade)A compensatory plan or arrangement.

(b) Reports on Form 8-K.

The Company filed the following reports on Form 8-K during the quarter
ended December 31, 1996:

1. Form 8-K dated November 21, 1996 reporting the sale of unregistered
securities pursuant to Regulation S.

2. Form 8-K dated December 11, 1996 reporting the sale of unregistered
securities pursuant to Regulation S.

3. Form 8-K dated December 19, 1996 reporting the sale of unregistered
securities pursuant to Regulation D and including the unaudited financial
statements of the Company as at and for the eleven months ended November
30, 1996. This report was subsequently amended by Form 8-K/A dated February
13, 1997.

43
<PAGE> 44
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Long Distance Direct Holdings, Inc.

Dated: April 2, 1997 By: /s/Steven Lampert
----------------------------------
Steven Lampert, President

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

/s/ Steven Lampert April 2, 1997
- ----------------------------------
Steven Lampert, President
(Principal Executive Officer) and
Director

/s/ Michael Preston April 2, 1997
- ----------------------------------
Michael Preston, Chief Financial Officer
(Principal Accounting Officer) and
Director

/s/ Rowland W. Day II April 2, 1997
- ----------------------------------
Rowland W. Day II, Director

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.

The registrant did not send any annual report or proxy materials to its security
holders during the registrant's last fiscal year.

44
<PAGE> 45
EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

3.1 Amended and Restated Articles of Incorporation of
Long Distance Direct Holdings, Inc. (formerly known
as Golden Ark, Inc.).*

3.2 Certificate of Amendment of Articles of Incorporation
of Long Distance Direct Holdings, Inc.*

3.3 Bylaws, as amended, of Long Distance Direct Holdings,
Inc.*

10.1 Buy-out Agreement between Long Distance Direct, Inc.,
and Steven Lampert, Michael Preston, Jeffrey
Schwartz, Michael Miller and JAMI Marketing Services,
Inc.*

10.2 Amended Lease Agreement for Suite 1430, 1 Blue Hill
Plaza, Pearl River, New York 10965, dated December,
1996.**

10.3 Agreement with AT&T dated July, 1995 for supply of
long distance telephone service for resale.*

10.4 Agreement with MCI dated March, 1996 for supply of
long distance telephone service for resale.*

10.5 1995 Stock Option Plan.*(Spade)

10.6 Agreement with Guthy-Renker-Engler dated May 15, 1996
regarding the marketing and distribution of an
infomercial.**

10.7 Agreement with Schulberg MediaWorks, Inc. dated June
10, 1996 regarding the production of an
infomercial.**

10.8 Agreement with Kaire International, Inc dated
November, 1996 and extension thereof dated December,
1996 regarding supply of telecommunications
services.**

10.9 Agreement with National Benefits Consultants, LLC
dated January, 1997 regarding supply of
telecommunications services.**

10.10 Agreement with AT&T dated February, 1997 for supply
of long distance telephone service for resale.**

10.11 Amendment to MCI Agreement dated September 23, 1996**

21 List of Subsidiaries.**

23.1 Consent of Adelman, Katz & Mond, L.L.P.

27 Financial Data Schedule.

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

*Incorporated by reference to the Company's Form 10-K/A dated November 7, 1996
filed with the Commission on November 7, 1996.

*(Spade)A compensatory plan or arrangement.

<PAGE> 1
EXHIBIT 23.1

[ADELMAN KATZ AND MOND, LLP LETTERHEAD]

CONSENT OF INDEPENDENT AUDITORS

To the Board of Directors
Long Distance Direct Holdings, Inc.

We hereby consent to the incorporation by reference in the Company's
Registration Statement on Form S-8 (Registration No. 333-09579) of our report
dated March 21, 1997, which includes an explanatory paragraph raising
substantial doubt about the Company's ability to continue as a going concern,
appearing in the Annual Report on Form 10-KSB of Long Distance Direct Holdings,
Inc. as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996.

ADELMAN KATZ AND MOND, LLP

New York, NY
March 31, 1997

EXHIBIT 23.1

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LONG
DISTANCE DIRECT HOLDINGS, INC. COMBINED STATEMENT OF OPERATIONS AND
BALANCE SHEET AT 12/31/96. AND, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH LONG DISTANCE DIRECT HOLDINGS, INC. FORM 10KSB FOR THE YEAR ENDED
12/31/96.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 962,471
<SECURITIES> 0
<RECEIVABLES> 1,444,962
<ALLOWANCES> 318,976
<INVENTORY> 0
<CURRENT-ASSETS> 3,273,623
<PP&E> 505,754
<DEPRECIATION> 193,576
<TOTAL-ASSETS> 3,715,424
<CURRENT-LIABILITIES> 2,298,193
<BONDS> 0
0
0
<COMMON> 6,598
<OTHER-SE> 1,410,633
<TOTAL-LIABILITY-AND-EQUITY> 3,715,424
<SALES> 5,310,237
<TOTAL-REVENUES> 5,310,237
<CGS> 3,650,162
<TOTAL-COSTS> 379,670
<OTHER-EXPENSES> 2,718,970
<LOSS-PROVISION> 222,754
<INTEREST-EXPENSE> 739,916
<INCOME-PRETAX> (2,401,236)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,401,236)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,401,236)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> 0.0

</TABLE>