<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1997
Commission File Number 33-26019-LA
Long Distance Direct Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 33-0323376
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1 Blue Hill Plaza, Pearl River, NY 10965
-----------------------------------------
Issuer's telephone number: 914-620-0765
________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common equity, as of March 31,
1997 is 8,070,318.
Transitional small business disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
Part I -- Financial Information
Item 1. -- Financial Statements
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
31-Mar
------
1997 December 31,
---- ------------
ASSETS (unaudited) 1996
- ------ ----------- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,673,493 $ 962,471
Accounts receivable (net of allowance for
doubtful accounts of $357,602 and $318,976 respectively) 2,477,948 1,125,986
Other current assets 837,929 924,431
------------ -----------
Total Current Assets 4,989,370 3,012,888
------------ -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 162,756 156,926
Computer equipment and software 349,558 257,108
Leasehold improvements 104,078 91,720
------------ -----------
616,392 505,754
Less: accumulated depreciation 222,771 193,576
------------ -----------
393,621 312,178
------------ -----------
Other Assets 207,000 129,623
Officers' Loans 136,745 260,735
5,726,736 3,715,424
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 2,442,093 1,453,796
Accrued expenses 201,494 353,681
Sales and excise taxes payable 484,797 490,716
------------ -----------
Total Current Liabilities 3,128,384 2,298,193
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock - par value $.001 per share;
authorized 30,000,000 shares; issued
and outstanding 8,070,318 shares 8,070 6,598
Additional paid in capital 10,103,582 8,477,420
Accumulated deficit (7,513,300) (7,066,787)
------------ -----------
Total Stockholders' Equity 2,598,352 1,417,231
------------ -----------
$ 5,726,736 $ 3,715,424
============ ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 3
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended 3/31/97 Ended 3/31/96
------------- -------------
<S> <C> <C>
REVENUES $ 2,097,202 $ 1,798,093
CUSTOMER REBATES AND REFUNDS 1,204 3,784
----------- -----------
NET REVENUES 2,095,998 1,794,309
COST OF SERVICES 1,542,722 1,115,081
----------- -----------
Gross Profit 553,276 679,228
----------- -----------
OPERATING EXPENSES
Sales and marketing 71,819 158,151
General and administrative 926,803 687,472
----------- -----------
Total Operating Expenses 998,622 845,623
----------- -----------
LOSS FROM OPERATIONS (445,346) (166,395)
OTHER EXPENSES (INCOME)
Interest expense 1,164 31,688
Interest income -- (1,032)
----------- -----------
Total Other Expenses (Income) 1,164 30,656
----------- -----------
NET LOSS ($ 446,510) ($ 197,051)
=========== ===========
NET LOSS PER SHARE (0.09) (0.05)
</TABLE>
<PAGE> 4
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
31-MAR-97 31-MAR-96
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($446,510) ($197,051)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 31,187 15,080
Amortization of note discount
Imputed interest on personal guarantee
Financing expenses
Provision for doubtful accounts 58,311 63,013
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,410,088) (653,451)
(Increase) decrease in other current assets 84,509 (33,998)
(Increase) decrease in other assets (77,378) (20,503)
Increase in accounts payable 988,297 688,136
Increase (decrease) in accrued expenses (152,187) 61,026
Increase (decrease) in sales and excise taxes payable (5,919) (144,690)
---------- ----------
Total Adjustment to Net Loss (483,268) (25,387)
---------- ----------
Net Cash Used in Operating Activities (929,778) (222,438)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (110,639) (15,551)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) of notes payable -- 80,199
Proceeds (payment) of related party loans 123,990 (120,667)
Proceeds from private placement 1,627,449 156,000
---------- ----------
Net Cash Provided by Financing Activities 1,751,439 115,532
---------- ----------
NET INCREASE (DECREASE) IN CASH 711,022 (122,457)
---------- ----------
CASH-Beginning of Period 962,471 207,666
CASH-End of Period $1,673,493 $ 85,209
</TABLE>
<PAGE> 5
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Company's position as
of March 31, 1997 and December 31, 1996 and results of its operations and cash
flows for the three month periods ending March 31, 1997 and March 30, 1996.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's financial statements in the Form 10KSB for the period ending
December 31, 1996.
SUBSEQUENT EVENTS -- COMPLETION OF PRIVATE OFFERING
On April 17, 1997, the Company closed a private offering of its Common Stock
pursuant to which the Company received a total of $2,600,000, net of certain
offering costs and expenses. Of this amount, $1,800,000 was received prior to
March 31, 1997 and the balance of $800,000 was received on April 17, 1997. The
pro-forma consolidated balance sheet as at March 31, 1997 set forth below has
been prepared to give effect to the receipt of the balance of such net offering
proceeds after March 31, 1997 without taking into account any other changes
after March 31, 1997.
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
---------
3/31/97
-------
ASSETS
- ------
<S> <C>
CURRENT ASSETS
Cash $2,461,391
Accounts receivable 2,477,948
Other current assets 837,929
------------
Total Current Assets 5,777,268
------------
PROPERTY AND EQUIPMENT
Furniture and equipment 162,756
Computer equipment and software 349,558
Leasehold improvements 104,078
------------
616,392
Less: accumulated depreciation 222,771
------------
393,621
------------
Other Assets 207,000
Officers' Loans 136,745
6,514,634
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 2,442,093
Accrued expenses 201,494
Sales and excise taxes payable 484,797
------------
Total Current Liabilities 3,128,384
------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock - par value $.001 per share;
authorized 30,000,000 shares; issued
and outstanding 8,517,318 shares 8,517
Additional paid in capital 10,891,033
Accumulated deficit (7,513,300)
------------
Total Stockholders' Equity 3,386,250
------------
$ 6,514,634
============
</TABLE>
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction
with the Financial Statements and the notes thereto appearing herein. This
report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this discussion and analysis and elsewhere in this
report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996.
Gross revenues for the three months ended March 31, 1997 were
$2,097,202 as compared to $1,798,093 for the three months ended March 31, 1996.
The 17% increase in sales is mainly attributable to sales generated from the
Company's televised marketing program launched in January, 1997.
1
<PAGE> 7
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 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 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.
Management has resumed the active pursuit of new customers in 1997 by
utilizing the marketing strategies mentioned above. In addition, the Company
intends to increase expenditures on sub-contracted telemarketing and direct mail
activities as well as establish its own in-house telemarketing facility.
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
2
<PAGE> 8
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 the customer service and
collections 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 $553,276 and $679,228 for the three months ended March
31,1997 and 1996, respectively. As a percentage of net sales, the gross profit
margins for the three months ended March 31, 1997 and 1996 were 26% and 38%,
respectively. This decrease is mainly attributable to costs incurred to fulfill
orders with respect to the Company's televised marketing program. The profit
margin realized from the fulfillment of these orders is currently minimal.
The Company recently entered into a new four-year contract tariff with
AT&T - which supersedes its contract dated September 1, 1995 - 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.
(This quarterly purchase requirement of $1,200,000 is the same as the Company's
obligation under its previous contract with AT&T dated September 1, 1995.).
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 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 $80,000, 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.
3
<PAGE> 9
During the first eight months of the ramp period, the Company had 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 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. In addition, rates
paid by the Company to MCI are contingent upon the Company's ability to meet its
minimum purchase requirements. During the first six months of the agreement,
either the Company or MCI had the option to 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 3/31/96, 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.
In April, 1997, the Company will sign another amendment to the MCI
agreement whereby it will receive more favorable rates on various types of
services.
Sales and marketing expenses were $71,819 and $158,151 for the three
months ended March 31, 1997 and 1996, respectively. As a percentage of gross
sales, sales and marketing expenses decreased from 9% for the three months ended
March 31, 1996 to 3% for the three months ended March 31, 1997. The percentage
decrease is attributable to limited expenditure on account acquisition from
outbound telemarketing firms due to concentration on other marketing strategies
in 1997. Management plans to resume its acquisition of accounts from these firms
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 $926,803 and $687,472 for the
three months ended March 31, 1997, and 1996, respectively. As a percentage of
gross sales, general and administrative expenses for the three months ended
March 31, 1997 and 1996 were 44% and 38% respectively. The principal elements
which contributed to the increase
4
<PAGE> 10
in general and administrative expenses are mainly related to the Company's
expansion of its resources in anticipation of increased levels of sales. Costs
which increased from their 1996 levels include payroll and related
administrative costs. In 1997, the Company incurred heavier costs for regulatory
compliance when compared to the first quarter of 1996 as a result of the
Company's attempt to seek certification to provide local service in each state.
Interest expense for the three months ended March 31, 1997 and 1996 was
$1,164 and $31,688, respectively. For the quarter ending March 31, 1996,
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 buyout 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.
The Company incurred a net loss of $446,510 for the three months ended
March 31, 1997 compared to a net loss of $197,051 for the three months ended
March 31, 1996.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $1,860,986
compared to negative working capital of $3,547,271 at March 31, 1996. The
Company experienced cash constraints throughout nearly all of 1996 due to
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 1995, 1996 and 1997. The Company plans to market its services
aggressively in 1997 to increase its revenues and customer database.
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 31, 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.
5
<PAGE> 11
Part II -- Other Information
Item 2. Changes in Securities
(c) During the fiscal quarter ended March 31, 1997, 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 January 1997, the Company granted an option to National Benefits
Consultants, LLC to purchase up to 20% of the Company's Common Stock at $3.00
per share. The option was granted pursuant to Section 4(2) of the Securities
Act of 1933 and Regulation D promulgated thereunder.
In January 1997, the Company granted an option to Rowland W. Day to purchase,
at an exercise price of $3.00 per share, 350,000 shares of Common stock. The
option was granted pursuant to Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder.
In March 1997, the Company issued 85,000 shares of Common Stock to Capital
Growth International, L.L.C. or nominee for investment banking services. The
shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder.
In an offering that commenced on February 14, 1997 and terminated on April 17,
1997, the Company sold 1,529,491 shares of Common Stock for cash at a price of
$2.00 per share to a total of 28 accredited investors. The offering was made on
behalf of the Company by Cruttenden Roth, Incorporated as placement agent. As
compensation for its services, the placement agent received $283,488 in
commissions and expenses and five year warrants to purchase, at a price of
$2.00 per share, 152,950 shares of Common Stock. The securities were issued
pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated thereunder.
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 25, 1997 Long Distance Direct Holdings, Inc.
By:/s/ Steven Lampert
--------------------------
Steven Lampert, President
(Principal Executive Officer)
By:/s/ Michael Preston
--------------------------
Michael Preston, Chief
Financial Officer (Principal
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROFIT AND
LOSS STATEMENT AND BALANCE SHEET OF LONG DISTANCE DIRECT HOLDINGS, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH LONG DISTANCE HOLDINGS, INC. FORM
10QSB.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,673,493
<SECURITIES> 0
<RECEIVABLES> 2,835,550
<ALLOWANCES> 357,602
<INVENTORY> 0
<CURRENT-ASSETS> 4,989,370
<PP&E> 616,392
<DEPRECIATION> 222,771
<TOTAL-ASSETS> 5,726,736
<CURRENT-LIABILITIES> 3,128,384
<BONDS> 0
0
0
<COMMON> 8,070
<OTHER-SE> 2,590,282
<TOTAL-LIABILITY-AND-EQUITY> 5,726,736
<SALES> 2,095,998
<TOTAL-REVENUES> 2,095,998
<CGS> 1,542,722
<TOTAL-COSTS> 71,819
<OTHER-EXPENSES> 868,492
<LOSS-PROVISION> 58,311
<INTEREST-EXPENSE> 1,164
<INCOME-PRETAX> (446,510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (446,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (446,510)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
