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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   -----------

                                    FORM 10-Q


(Mark One)
/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 
     For the quarterly period ended March 31, 1997 
                                        or 
/ /  TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 
     For the transition period from          to 

                         Commission File Number 0-18195

                                   -----------

                            U.S. LONG DISTANCE CORP.
             (Exact name of registrant as specified in its charter)

                DELAWARE                               74-2522103 
     (State or other jurisdiction of              (IRS Employer ID No.) 
     incorporation or organization) 
        9311 SAN PEDRO, SUITE 100                         78216 
           SAN ANTONIO, TEXAS                          (Zip code) 
(Address of principal executive offices) 

                                 (210) 525-9009
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 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.  /X/ Yes  / / No 

     Indicated below is the number of shares outstanding of the registrant's 
only class of common stock at April 30, 1997: 

                  TITLE OF CLASS                         NUMBER OF SHARES 
                  --------------                            OUTSTANDING 
                                                            -----------
 Common Stock, $0.01 par value                              15,482,159 

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                    U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

                          QUARTERLY REPORT ON FORM 10-Q
                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

                                      INDEX

                                                                            PAGE
                                                                            ----
PART I  FINANCIAL INFORMATION 
Item 1. Interim Consolidated Financial Statements (Unaudited) 
        Consolidated Balance Sheets - March 31, 1997 and September 30,          
          1996..............................................................   3
        Consolidated Statements of Income - For the Three and Six Months 
          Ended March 31, 1997 and 1996.....................................   4
        Consolidated Statements of Cash Flows - For the Six Months Ended  
          March 31, 1997 and 1996...........................................   5
        Notes to Interim Consolidated Financial Statements...................  6
Item 2. Management's Discussion and Analysis of Financial Condition and         
        Results of Operations................................................ 10
PART II OTHER INFORMATION 
Item 1. Legal Proceedings.................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders.................. 20
Item 6. Exhibits and Reports on Form 8-K..................................... 21
                 (a) Exhibits................................................ 21
                 (b) Current Reports on Form 8-K............................. 21
 SIGNATURES.................................................................. 22

                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION          

               ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

                    U.S. LONG DISTANCE CORP. AND SUBSIDIARIES    

                           CONSOLIDATED BALANCE SHEETS           
               (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
                                   (UNAUDITED)                   

                                     ASSETS                      
<TABLE>
                                                                                MARCH 31, SEPTEMBER 30,
                                                                                  1997         1996    
                                                                                --------  -------------
<S>                                                                             <C>       <C>
Current assets:                                                                 
  Cash and cash equivalents.................................................... $  8,766     $ 8,842
  Accounts receivable, net.....................................................   35,528      35,867
  Prepaids and other...........................................................    7,518       6,002
                                                                                --------     -------
       Total current assets....................................................   51,812      50,711
  Property and equipment, net..................................................   33,787      29,577
  Equipment held under capital leases, net.....................................      131         282
  Other assets:                                                                                     
  Excess of cost over net assets acquired, net.................................   13,519      13,804
  Other assets, net............................................................    5,392       4,870
                                                                                --------     -------
       Total assets............................................................ $104,641     $99,244
                                                                                --------     -------
                                                                                --------     -------
                       LIABILITIES AND STOCKHOLDERS' EQUITY                   
Current liabilities:                                                           
  Trade accounts payable....................................................... $ 15,160     $10,909
  Accrued liabilities..........................................................    8,346      13,581
  Current portion of long-term debt............................................    6,125       5,854
  Current portion of obligations under capital leases..........................      160         294
                                                                                --------     -------
       Total current liabilities...............................................   29,791      30,638
  Other liabilities............................................................      551          52
  Long-term debt, less current portion.........................................   11,824      10,146
  Obligations under capital leases, less current portion.......................       83         143
                                                                                --------     -------
       Total liabilities.......................................................   42,249      40,979

Commitments and contingencies (See Notes 6 and 8)                              

Stockholders' equity:                                                          
  Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares    
    issued or outstanding at March 31, 1997 or September 30, 1996..............        0           0
  Common stock, $0.01 par value, 50,000,000 shares authorized; 15,580,809 and  
    15,255,977 shares issued and 15,376,708 and 15,051,876 shares outstanding  
    at March 31, 1997 and September 30, 1996, respectively.....................      156         153
  Additional paid-in capital...................................................   56,350      54,554
  Retained earnings............................................................    7,793       5,465
  Treasury stock...............................................................   (1,907)     (1,907)
                                                                                --------     -------
       Total stockholders' equity..............................................   62,392      58,265
                                                                                --------     -------
       Total liabilities and stockholders' equity.............................. $104,641     $99,244
                                                                                --------     -------
                                                                                --------     -------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                       3
<PAGE>

                    U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME    
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 
                                   (UNAUDITED)               
<TABLE>
                                                                        THREE MONTHS ENDED     SIX MONTHS ENDED
                                                                            MARCH 31,             MARCH 31,    
                                                                        ------------------     ----------------
                                                                         1997       1996       1997       1996 
                                                                        -------    -------    -------    -------
<S>                                                                     <C>        <C>        <C>        <C>    
Operating revenues:
  Direct dial long distance services..................................  $39,732    $29,046    $75,107    $54,080
  Operator services...................................................   13,240     14,609     26,612     29,283
  Local services......................................................      196          0        196          0
                                                                        -------    -------    -------    -------
        Total operating revenues......................................   53,168     43,655    101,915     83,363
Cost of services......................................................   35,516     28,875     67,497     55,261
                                                                        -------    -------    -------    -------
  Gross profit........................................................   17,652     14,780     34,418     28,102
Selling, general and administrative expense...........................   12,423     12,929     24,354     24,311
Depreciation and amortization expense.................................    2,704      2,938      5,347      5,709
                                                                        -------    -------    -------    -------
  Income (loss) from continuing operations............................    2,525     (1,087)     4,717     (1,918)
Other income (expense):                                                                                         
  Interest income.....................................................      129        200        326        422
  Interest expense....................................................     (333)      (315)      (683)      (691)
  Other, net..........................................................       67       (100)         6       (132)
                                                                        -------    -------    -------    -------
  Total other expense.................................................     (137)      (215)      (351)      (401)
Income (loss) from continuing operations before income tax benefit                                               
  (provision).........................................................    2,388     (1,302)     4,366     (2,319)
Income tax benefit (provision)........................................     (943)       224     (1,768)       395
                                                                        -------    -------    -------    -------
Net income (loss) from continuing operations..........................    1,445     (1,078)     2,598     (1,924)
Discontinued operations (See Notes 1 and 3):                                                         
  Income from discontinued operations, net of income taxes of $3,078 and                             
  $5,497, three and six months ended March 31, 1996, respectively.....        0      5,022          0      8,970
                                                                        -------    -------    -------    -------
Net income............................................................  $ 1,445    $ 3,944    $ 2,598    $ 7,046
                                                                        -------    -------    -------    -------
                                                                        -------    -------    -------    -------
Net income (loss) per common share:                                                                  
  Continuing operations...............................................  $  0.09    $ (0.07)   $  0.16    $ (0.13)
  Discontinued operations.............................................     0.00       0.33       0.00       0.60
                                                                        -------    -------    -------    -------
  Net income per common share.........................................  $  0.09    $  0.26    $  0.16    $  0.47
                                                                        -------    -------    -------    -------
                                                                        -------    -------    -------    -------
Weighted average common shares and common share equivalents                                          
  outstanding.........................................................   16,423     15,189     16,286     15,021
The accompanying notes are an integral part of  these consolidated financial statements.
</TABLE>
                                       4

<PAGE>

                    U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS  
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
                                                                            SIX MONTHS ENDED 
                                                                               MARCH 31,     
                                                                         ---------------------
                                                                           1997         1996 
                                                                         -------      --------
<S>                                                                      <C>          <C>     
Cash flows from operating activities:                                    
  Net income (1997), net loss from continuing operations (1996)......... $ 2,598      $(1,924)
  Adjustments to reconcile net income (1997), net loss from continuing          
    operations (1996) to net cash provided by operating activities:
       Depreciation and amortization....................................   5,347        5,709
       Loss on disposition of equipment.................................      33          206
       Provision for losses on accounts receivable......................   3,960        3,664
       Deferred compensation............................................       0          245
       Changes in operating assets and liabilities:
            Increase in accounts receivable.............................  (3,485)      (7,825)
            Decrease (increase) in prepaids and other...................  (2,760)         732
            Increase in accounts payable................................   4,168        6,161
            Increase (decrease) in accrued liabilities..................  (4,068)       1,293
            Increase (decrease) in other liabilities....................     499         (175)
                                                                         -------      -------
Net cash provided by operating activities...............................   6,292        8,086
                                                                         -------      -------
Net cash used in discontinued operations................................       0       (4,016)
Cash flows from investing activities:                                         
  Purchases of property and equipment...................................  (7,801)      (3,522)
  Proceeds from sale of assets..........................................       0           43
  Other investing activities............................................    (964)       1,382
                                                                         -------      -------
Net cash used in investing activities...................................  (8,765)      (2,097)
                                                                         -------      -------
Cash flows from financing activities:                                         
  Proceeds from issuance of debt........................................   5,452            0
  Payments on debt......................................................  (3,504)      (3,156)
  Payments on capital leases............................................    (194)        (189)
  Proceeds from issuance of common stock................................     643        1,372
                                                                         -------      -------
Net cash provided by (used in) financing activities.....................   2,397       (1,973)
                                                                         -------      -------
Net decrease in cash and cash equivalents...............................     (76)           0
Cash and cash equivalents, beginning of period..........................   8,842            0
                                                                         -------      -------
Cash and cash equivalents, end of period................................ $ 8,766      $     0
                                                                         -------      -------
                                                                         -------      -------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                       5
<PAGE>

                    U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The interim consolidated financial statements included herein have been 
prepared by U.S. Long Distance Corp. ("USLD") and subsidiaries (collectively 
referred to as the "Company"), without audit, pursuant to the rules and 
regulations of the Securities and Exchange Commission ("SEC"). All 
adjustments have been made to the accompanying interim consolidated financial 
statements which are, in the opinion of the Company's management, necessary 
for a fair presentation of the Company's operating results. All adjustments 
are of a normal recurring nature. Certain information and footnote 
disclosures normally included in financial statements prepared in accordance 
with generally accepted accounting principles have been condensed or omitted 
pursuant to such rules and regulations. It is recommended that these interim 
consolidated financial statements be read in conjunction with the 
consolidated financial statements and the notes thereto included in the 
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 
1996. Certain prior period amounts have been reclassified for comparative 
purposes and to reflect the spin-off discussed in Note 3 below. 

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

     The Company recognizes revenue from its direct dial long distance, 
operator and local services as such services are performed.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1996, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for 
Transfers and Servicing of Financial Assets and Extinguishments of 
Liabilities." SFAS No. 125 provides accounting and reporting standards for, 
among other things, the transfer and servicing of financial assets, such as 
factoring receivables with recourse.  SFAS No. 125 is effective for transfers 
and servicing of financial assets occurring after December 31, 1996, and is 
to be applied prospectively. Earlier or retroactive application is not 
permitted.  In December 1996, the FASB issued SFAS No. 127, "Deferral of the 
Effective Date of Certain Provisions of SFAS No. 125." SFAS No. 127 amends 
the effective date for certain provisions of SFAS No. 125 to December 31, 
1997. Management of the Company does not anticipate the adoption of SFAS No. 
125 will have a material impact on the Company's financial position or 
results of operations.

     In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," 
which establishes standards for computing and presenting earnings per share 
("EPS") for entities with publicly held common stock or potential common 
stock. SFAS No. 128 simplifies the standards for computing EPS previously 
found in Accounting Principles Board Opinion No. 15, "Earnings Per Share", 
and makes them comparable to international EPS standards. It replaces the 
presentation of primary EPS with a presentation of basic EPS, which excludes 
dilution. It also requires dual presentation of basic and diluted EPS on the 
face of the income statement for all entities with complex capital 
structures. SFAS No. 128 is effective for fiscal years ending after December 
15, 1997 and early adoption is not permitted. Had SFAS No. 128 been applied, 
pro forma basic EPS would have been $0.09 and $0.17 for the three and six 
months ended March 31, 1997, respectively, and $0.27 and $0.49 for the three 
and six months ended March 31, 1996, respectively. Pro forma diluted EPS 
would have been $0.09 and $0.16 for the three and six months ended March 31, 
1997, respectively, and $0.26 and $0.47 for the three and six months ended 
March 31, 1996, respectively. Management of the Company does not anticipate 
the adoption of SFAS No. 128 will have a material impact on the Company's 
financial position or results of operations.

                                       6

<PAGE>

NOTE 3. DISCONTINUED OPERATIONS

     On August 2, 1996, the Company completed the spin-off of its subsidiary 
engaged in the billing clearinghouse and information management services 
business, Billing Information Concepts Corp. ("Billing"). The spin-off has 
been accounted for as a discontinued operation and, accordingly, the Company 
restated its consolidated financial statements for all periods presented 
prior to that date in accordance with Accounting Principles Board Opinion No. 
30. The spin-off was a tax-free distribution of 100% of the common stock of 
Billing to the Company's stockholders.

     Revenues of the discontinued operations of Billing were $26.9 million 
and $50.3 million for the three and six-month periods ended March 31, 1996, 
respectively. Net income of the discontinued operations of Billing was $5.0 
million and $9.0 million for the three and six-month periods ended March 31, 
1996, respectively.

NOTE 4. STOCKHOLDERS' EQUITY

     During the six months ended March 31, 1997, employees of the Company 
exercised stock options to purchase an aggregate of 165,792 common shares at 
exercise prices ranging from $0.78 to $4.76 per share, resulting in aggregate 
consideration to the Company of approximately $424,000 in cash. In addition, 
the Company issued an aggregate of 59,040 common shares during the six months 
ended March 31, 1997 to participants in the U.S. Long Distance Corp. Employee 
Stock Purchase Plan, resulting in aggregate consideration to the Company of 
approximately $219,000 in cash.

NOTE 5. STATEMENTS OF CASH FLOWS

     Cash payments and non-cash activities during the periods indicated were 
as follows: 
                                                                SIX MONTHS ENDED
                                                                     MARCH 31,  
                                                                ----------------
                                                                   1997    1996 
                                                                  ------  ------
                                                                  (IN THOUSANDS)
  Cash payments for income taxes................................. $1,257  $4,533
  Cash payments for interest.....................................    683     674
  Non-cash investing and financing activities:
     Assets acquired in connection with pooling of interests.....    110       0
     Liabilities assumed in connection with pooling of interests.    118       0
     Common stock issued in connection with pooling of interests.    248       0
     Tax benefit of options exercised............................    909       0
     Return of escrowed treasury stock...........................      0     118

NOTE 6. INCOME TAXES

     The Company has been notified by the Internal Revenue Service ("IRS") 
that a fiscal 1992 transaction between a wholly owned foreign subsidiary 
(Mega Plus Dialing, Inc.) and its U.S. subsidiary (Billing Information 
Concepts, Inc., formerly Zero Plus Dialing, Inc.) is proposed to be treated 
differently by the IRS than originally characterized by the Company. The IRS 
district office has issued a report that proposed an assessment of taxes, 
penalties and interest. The assessment has been appealed to the appellate 
division of the IRS.  The Company and its tax counsel believe the possibility 
that the IRS will prevail in this matter is remote.  Consequently, no accrual 
for this potential liability or any associated taxes, interest or penalties 
has been made. At the present time, management of the Company does not 
anticipate this matter will have a material impact on the Company's financial 
position or results of operations.

NOTE 7. RELATED PARTY TRANSACTIONS

     The Company and Billing share a common individual on their respective 
boards of directors. Therefore, the companies are considered related parties 
for financial disclosure purposes. At March 31, 1997 and September 30, 1996, 
the Company had accounts receivable from Billing of $237,000 and $1.3 
million, as well as notes receivable of $902,000 and $1.0 million, 
respectively.  In addition, the Company had accounts payable to Billing of 
$971,000 and $1.1 million at 

                                       7

<PAGE>

March 31, 1997 and September 30, 1996, respectively. Operating revenues 
recognized from Billing were $621,000 and $948,000 for the three-month 
periods ended March 31, 1997 and 1996, respectively. Operating revenues 
recognized from Billing were $1.6 million and $1.6 million for the six-month 
periods ended March 31, 1997 and 1996, respectively. In addition, the Company 
incurred operating expenses related to billing and collection fee charges 
from Billing of $1.3 million and $1.2 million for the three-month periods 
ended March 31, 1997 and 1996, respectively. Operating expenses related to 
billing and collection fee charges from Billing of $2.5 million and $2.6 
million were incurred for the six-month periods ended March 31, 1997 and 
1996, respectively. 

     Historically, the Company has obtained financing for capital 
expenditures through term debt agreements and capital lease agreements that 
were guaranteed and cross-collateralized by the Company and Billing.  These 
debt agreements were negotiated based on the strength of the consolidated 
financial statements, earnings and cash flow of the consolidated group.  Most 
of these debt agreements were secured by the assets of all the subsidiaries 
within the consolidated group.  The Company has received from certain lenders 
loan agreement amendments or separate loan agreements whereby the subject 
indebtedness will be secured by only the Company's assets.  In other cases, 
the existing guarantees and security arrangements between the Company and 
Billing will remain in place for the duration of the facility.  In this 
regard, the Company has agreed to pay Billing a credit support fee of 1% of 
the average annual outstanding balance.

NOTE 8. COMMITMENTS AND CONTINGENCIES

     The Company is involved in various claims, legal actions and regulatory 
proceedings arising in the ordinary course of business. The Company believes 
it is unlikely that the final outcome of any of the claims or proceedings to 
which the Company is a party would have a material adverse effect on the 
Company's financial position or results of operations; however, due to the 
inherent uncertainty of litigation, there can be no assurance that the 
resolution of any particular claim or proceeding would not have a material 
adverse effect on the Company's results of operations for the fiscal period 
in which such resolution occurred. 

NOTE 9. REGULATORY MATTERS

BILLED PARTY PREFERENCE

     In April 1992, the FCC tentatively proposed adopting a "Billed Party 
Preference" ("BPP") system for automatically routing operator assisted calls 
to each caller's pre-selected carrier, fundamentally changing the nature of 
the operator services industry.  Comments were requested by the FCC during 
1992 and again in 1994.  In each case, industry participants overwhelmingly 
opposed the idea as too costly, relative to the perceived benefits of such a 
system.

     On March 9, 1995, the FCC requested industry comment on two proposals it 
had recently received relative to the BPP proceeding.  In an ex-parte 
petition, the National Association of Attorney's General ("NAAG") suggested 
that the FCC modify its current branding requirement such that operator 
service providers ("OSPs") would be required to announce at the beginning of 
each call more specific information for obtaining access to alternate 
carriers (the "NAAG Petition").  Another petition filed by a coalition of 
industry members, including most of the RBOCs, two competitive access 
providers, the American Public Communications Counsel ("APCC") and the 
Competitive Telecommunications Association ("CompTel"), recommended that the 
FCC impose certain rate thresholds for interstate operator assisted services, 
which the FCC would presume to be reasonable, and any OSP electing to charge 
rates higher than such threshold would be required to first prove to the FCC 
that such rates are justified based upon the underlying costs of the service 
(the "APCC Rate Cap Proposal").  The NAAG Petition was proposed to remain in 
effect until such time that BPP is adopted and fully implemented.  The APCC 
Rate Cap Proposal was proposed to obviate the need to consider any further 
action regarding BPP.  

     Subsequently, in June 1996, the FCC issued a Second Further Notice of 
Proposed Rulemaking ("SFNPRM") in this proceeding.  In it, the FCC proposed 
adopting a rule which would require OSPs to announce the rates for certain 
calls to the billed party prior to connecting the call, thereby allowing the 
billed party to disconnect such call without incurring any unwanted charges.  
In 1996, the FCC released its Second Request for Comment in the SFNPRM, 
soliciting technical and other administrative details to support the proposed 
announcement requirement.  Most commentors objected to the 

                                       8

<PAGE>

discriminatory nature of the proposal, which would have some carriers 
announcing rates while others would not.  If any of these proposals are 
adopted by the FCC, the Company's operator service traffic could be 
materially adversely affected.

MFJ LEGISLATION

     On February 8, 1996, President Clinton signed the Telecommunications Act 
of 1996 into law.  The new law allows the RBOCs to petition their respective 
"in-region" state regulatory agencies to seek authority from the FCC to allow 
the applicant RBOC to provide long distance services. To obtain this 
authority, each state agency is required to certify to the FCC that the 
applicant RBOC has satisfied a legislative "checklist" that outlines the 
steps required for an RBOC to open its network to competition on a local 
basis.  These steps include the provision of competitive network 
interconnection, unbundled access to network elements and other  necessary 
access to poles, ducts, conduits and rights-of-way. Furthermore, applicant 
RBOCs must provide non-discriminatory access to white pages listings and 
telephone number assignments.  Applicant RBOCs must provide local number 
portability, toll dialing parity and local service resale. The FCC is 
required to consult with the Department of Justice ("DOJ") to assist in 
determining if an applicant RBOC's entry into the long distance business 
violates any antitrust standards the DOJ considers appropriate. Ninety days 
after receiving such an application, the FCC is required to render its 
decision. RBOCs are required to establish separate subsidiaries through which 
they could first offer in-region long distance services. RBOCs may provide 
out-of-region long distance services subject to existing laws and regulations 
governing long distance communications.

     To date, no RBOC has been granted authority for in-region interLATA 
services, because the provisions set forth above have not been satisfied by 
any RBOC. However, many entities, including the Company, have reached 
interconnection agreements with one or more of the RBOCs to date, and many 
states have adopted rules governing local competition. It is reasonable to 
expect that the conditions for RBOC entry will be met in the near future, and 
carriers in the interLATA long distance business today, such as the Company, 
will encounter new, formidable competition.

REGULATORY RATE PROCEEDINGS

     During the course of normal operations, a regulated company may at any 
time come under specific scrutiny with regard to any of its rates, terms or 
conditions by which such service is rendered by a state or federal regulatory 
agency charged with such oversight responsibility, or by an attorney general 
or other jurisdictional consumer officials.  In such cases, a regulated 
company can be required to, among other things, provide cost justification 
for the charges it imposes on some or all of its services, or to address 
perceived consumer inequities.  After review of such justification, the 
regulatory agency, generally, has the authority to require a carrier to 
modify the process by which such services are rendered or to effect changes 
to its applicable rate structure.  Consumer officials and attorneys general 
can pursue civil action if their concerns are not adequately addressed by the 
carrier.  The Company operates in several jurisdictions in which its tariffs 
or services may, from time to time, fall under such scrutiny at the 
discretion of the governing regulatory agency or other officials.  The 
Company could therefore be required, as a result of such an investigation and 
subsequent proceeding, to implement changes in its rate structure, which 
could ultimately affect its revenues.  The Company cannot predict whether or 
not any such requirement may be imposed in any particular jurisdiction.

                                       9

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS

     THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN "FORWARD-LOOKING 
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, 
AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE 
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").  SPECIFICALLY, ALL STATEMENTS 
OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING 
THE OUTLOOK, REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY 
AND PLANS AND OBJECTIVES OF MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS 
ARE FORWARD-LOOKING STATEMENTS.  THESE FORWARD-LOOKING STATEMENTS ARE BASED 
ON THE BELIEFS OF THE COMPANY'S MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY 
AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN 
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "COULD," "ESTIMATE," "EXPECT" 
AND "INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE 
COMPANY OR COMPANY'S MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING 
STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF THE COMPANY WITH 
RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND 
ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS, 
COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER RELATIONS, 
RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL 
REGULATION AND SUPERVISION, SEASONALITY, THE OPERATION OF THE COMPANY'S 
NETWORKS, TRANSMISSION COSTS, PRODUCT INTRODUCTIONS AND ACCEPTANCE, 
TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND 
OTHER FACTORS DESCRIBED HEREIN ("CAUTIONARY STATEMENTS").  ALTHOUGH THE 
COMPANY BELIEVES THAT THE EXPECTATIONS ARE REASONABLE, IT CAN GIVE NO 
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT.  BASED UPON 
CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES 
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL 
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, 
BELIEVED, ESTIMATED, EXPECTED OR INTENDED.  ALL SUBSEQUENT WRITTEN AND ORAL 
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON 
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE APPLICABLE 
CAUTIONARY STATEMENTS.

GENERAL

     The following is a discussion of the consolidated financial condition 
and results of operations of the Company for the three and six-month periods 
ended March 31, 1997 and 1996. It should be read in conjunction with the 
Interim Consolidated Financial Statements of the Company, the Notes thereto 
and other financial information included elsewhere in this report. For 
purposes of the following discussion, references to year periods refer to the 
Company's fiscal year ended September 30 and references to quarterly periods 
refer to the Company's fiscal quarter ended March 31. 

     On July 10, 1996, the Company's Board of Directors approved a plan to 
spin off the Company's Billing Group Business as a separate public company.  
To effect the spin-off, the Board approved the distribution of the 
outstanding shares of common stock of its wholly owned subsidiary that owned 
and operated the Billing Group Business, Billing, to the Company's 
stockholders. The distribution was completed on August 2, 1996.
     
     The spin-off has been accounted for as a discontinued operation, and 
accordingly, the Company restated its consolidated financial statements for 
all periods presented prior to that date in accordance with Accounting 
Principles Board Opinion No. 30.  The unaudited Consolidated Pro Forma 
Statements of Income for the three and six-month periods ended March 31, 1996 
are also included and discussed in a separate section below. 

OVERVIEW

     Revenues increased 22% in the second quarter of 1997 to $53.1 million 
from $43.7 million in the second quarter of 1996. Revenues increased 22% in 
the six-month period ended March 31, 1997, compared to the corresponding 
period of 1996. The Company's gross profit margin was 33.2% and 33.8% during 
the quarter and six months ended March 31, 1997, respectively, compared to 
33.9% and 33.7% during the same periods of 1996. 

     The Company's selling, general and administrative ("SG&A") expenses as a 
percentage of revenues in the quarter ended March 31, 1997 decreased to 23.4% 
from 29.6% in the quarter ended March 31, 1996. SG&A expenses as a percentage 
of revenues were 23.9% in the first six months of fiscal 1997 compared to 
29.2% in the corresponding period of 1996. This decrease was primarily the 
result of tighter expense controls and increased efficiencies. Depreciation 
and

                                       10

<PAGE>

amortization expenses as a percentage of revenues decreased to 5.1% and 5.2% 
during the quarter and six months ended March 31, 1997, respectively, from 
6.7% and 6.8% during the same periods of 1996. Income from continuing 
operations of $2.5 million was reported for the quarter ended March 31, 1997, 
compared to a loss of $1.1 million during the same quarter of the prior year. 
 For the first six months of fiscal 1997, income from continuing operations 
was $4.7 million compared to a loss of $1.9 million during the same period of 
the prior year.

RESULTS OF OPERATIONS

     The following table presents certain items in the Consolidated 
Statements of Income as a percentage of total revenues for the three and 
six-month periods ended March 31, 1997 and 1996: 

                                            THREE MONTHS ENDED  SIX MONTHS ENDED
                                                 MARCH 31,         MARCH 31,  
                                            ------------------  ----------------
                                               1997     1996     1997     1996
                                              ------   ------   ------   ------
     Operating revenues:                                                      
     Direct dial long distance services....... 74.7%    66.5%    73.7%    64.9%
     Operator services........................ 24.9     33.5     26.1     35.1
     Local services...........................  0.4      0.0      0.2      0.0
                                              -----    -----    -----    -----
     Total operating revenues.................100.0    100.0    100.0    100.0
     Operating expenses:                      
     Cost of services......................... 66.8     66.1     66.2     66.3
     Selling, general and administrative...... 23.4     29.6     23.9     29.2
     Depreciation and amortization............  5.1      6.7      5.2      6.8
                                              -----    -----    -----    -----
     Income (loss) from continuing operations.  4.7%    (2.4)%    4.7%    (2.3)%
                                              -----    -----    -----    -----
                                              -----    -----    -----    -----

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
OPERATING REVENUES
     Revenues increased 22% in the second quarter of 1997 to $53.1 million 
from $43.7 million in the second quarter of 1996. Growth in direct dial long 
distance services revenue accounted for $10.7 million of the total increase 
in revenues while operator services revenues decreased by $1.4 million. 

     DIRECT DIAL LONG DISTANCE SERVICES.  Direct dial long distance services 
revenue increased 37% to $39.7 million in the second quarter of 1997 compared 
to $29.0 million in the second quarter of 1996. The increase in revenue is 
primarily attributable to growth in the number of customers serviced.

     OPERATOR SERVICES.  Operator services revenue was $13.2 million in the 
second quarter of 1997 compared to $14.6 million in the second quarter of 
1996. The Company processed 3.6 million operator services calls in the second 
quarter of 1997 compared to 4.2 million in the second quarter of 1996. The 
Company serviced an average of approximately 64,200 pay telephones and 
142,000 hospitality rooms per month for the quarter ended March 31, 1997, 
compared to an average of approximately 67,500 pay telephones and 121,100 
hospitality rooms per month for the quarter ended March 31, 1996. The 
decrease in revenue is principally attributable to the decrease in volume of 
operator services calls. The decrease in call volume is primarily 
attributable to an increasing awareness on the part of the consumer of the 
ability to select a carrier of choice by dialing access codes of other 
carriers ("dial-around").

     LOCAL SERVICES.  Local service revenue was $196,000 in the second 
quarter of 1997 compared to $0 in the second quarter of 1996. The Company 
entered the local service market in Texas during the second quarter of 1997, 
and was providing local resale service to approximately 5,000 privately owned 
pay telephones in Texas at March 31, 1997.

OPERATING EXPENSES
     COST OF SERVICES.  The gross profit margin of 33.2% reported for the 
quarter ended March 31, 1997 decreased from 33.9% achieved in the comparable 
prior year quarter. This decrease is due primarily to an increase in the 
direct dial long distance services revenues as a percentage of total revenue. 
Such revenues have a lower gross margin than the operator services revenue 
and accounted for 74.7% of the Company's total revenues for the second 
quarter of 1997 compared to 

                                       11
<PAGE>

66.5% for the corresponding quarter of 1996. Additional reoccurring network 
fixed costs associated with the Company's newly installed Atlanta switch also 
contributed to the decrease. The switch was installed during the second 
quarter of 1997. Although management continues to undertake measures to 
improve gross profit margins, continued pricing pressures and the impact of 
regulatory issues could pressure future gross profit margins.

     SELLING, GENERAL AND ADMINISTRATIVE.  SG&A expenses for the second 
quarter of 1997 were $12.4 million, representing 23.4% of revenues, compared 
to $12.9 million in the second quarter of 1996, or 29.6% of revenues. SG&A 
expenses decreased $506,000, or 4.0%, compared to the second quarter of 1996. 
SG&A expenses as a percentage of revenues have continued to decrease as a 
result of tighter expense controls and efforts to streamline the Company's 
operations.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense 
was $2.7 million in the second quarter of 1997, compared to $2.9 million in 
the second quarter of 1996. As a percent of revenues, depreciation and 
amortization expense declined to 5.1% in the second quarter of 1997 from 6.7% 
in the prior year quarter. This decrease is partially attributable to the 
increase in revenues from the prior year quarter. In addition, depreciation 
and amortization expense decreased $234,000 compared to the second quarter of 
1996. This decrease is primarily attributable to the $1.8 million write-off 
of certain computer equipment, customer lists and goodwill as part of a 
fourth quarter fiscal 1996 restructuring charge.

INCOME (LOSS) FROM CONTINUING OPERATIONS
     Income from continuing operations in the second quarter of 1997 
increased to $2.5 million for the second quarter of 1997, compared to a loss 
of $1.1 million in the second quarter of 1996. The continued improvement in 
operations is primarily attributable to the increase in revenues and the 
decrease in SG&A expenses as a percentage of revenues, both of which are 
discussed above.

OTHER EXPENSE, NET
     Net other expense decreased to $137,000 in the second quarter of 1997 
from $215,000 in the second quarter of 1996. This decrease is primarily 
attributable to other miscellaneous income recognized in the second quarter 
of 1997.

INCOME TAXES
     The Company's effective tax rate is higher than the federal statutory 
rate due to the addition of state income taxes and certain deductions taken 
for financial reporting purposes which are not deductible for federal income 
tax purposes. The effective tax rate increased to 39.5% in the second quarter 
of 1997 from 17.2% in the second quarter of 1996 due to the graduated federal 
income tax rate structure.

NET INCOME
     The Company reported net income of $1.4 million in the second quarter of 
1997 compared to net income of $3.9 million in the second quarter of 1996.  
This decrease is attributable to the spin-off of Billing, which provided $5.0 
million of net income from discontinued operations in the second quarter of 
1996.

SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
OPERATING REVENUES
     Revenues increased 22% in the first six months of 1997 to $101.9 million 
from $83.4 million in the first six months of 1996. Growth in direct dial 
long distance services revenue accounted for $21.0 million of the total 
increase in revenues while operator services revenue decreased by $2.7 
million.

     DIRECT DIAL LONG DISTANCE SERVICES.  Direct dial long distance services 
revenue increased 39% to $75.1 million in the first six months of 1997 
compared to $54.1 million in the first six months of 1996. The increase in 
revenue is primarily attributable to growth in the number of customers 
serviced.

     OPERATOR SERVICES.  Operator services revenue was $26.6 million in the 
first six months of 1997 compared to $29.3 million in the first six months of 
1996. The Company processed 7.2 million operator services calls in the first 
six months of 1997 compared to 8.5 million in the first six months of 1996. 
The Company serviced an average of approximately 63,500 pay telephones and 
140,300 hospitality rooms per month for the six months ended March 31, 1997, 
compared to an average 

                                       12

<PAGE>

of approximately 66,800 pay telephones and 126,400 hospitality rooms per 
month for the six months ended March 31, 1996. The decrease in revenue is 
principally attributable to the decrease in volume of operator services 
calls. The decrease in call volume is primarily attributable to an increasing 
awareness on the part of the consumer of the ability to select a carrier of 
choice by dialing access codes of other carriers ("dial-around").

     LOCAL SERVICES.  Local service revenue was $196,000 in the first six 
months of 1997 compared to $0 in the first six months of 1996. The Company 
entered the local service market in Texas during the second quarter of 1997, 
and was providing local resale service to approximately 5,000 privately owned 
pay telephones in Texas at March 31, 1997.

OPERATING EXPENSES
     COST OF SERVICES. The gross profit margin of 33.8% reported for the six 
months ended March 31, 1997 increased slightly from 33.7% achieved in the 
comparable prior year period. This increase is due primarily to improved 
direct dial long distance and operator services gross margins. The direct 
dial and operator services margins have increased primarily as a result of 
continued improvements in networking efficiencies and reductions in 
transmission costs. However, this increase was virtually offset by an 
increase in the direct dial long distance services revenues as a percentage 
of total revenue. Such revenues have a lower gross margin than the operator 
services revenue and accounted for 73.7% of the Company's total revenues for 
the first six months of  1997 compared to 64.9% for the corresponding six 
months of 1996. Additional reoccurring network fixed costs associated with 
the Company's newly installed Atlanta switch also impacted the margin. The 
switch was installed during the second quarter of 1997. Although management 
continues to undertake measures to improve gross profit margins, continued 
pricing pressures and the impact of regulatory issues could pressure future 
gross profit margins.

     SELLING, GENERAL AND ADMINISTRATIVE.  SG&A expenses for the first six 
months of 1997 were $24.4 million, representing 23.9% of revenues, compared 
to $24.3 million in the first six months of  1996, or 29.2% of revenues. SG&A 
expenses as a percentage of revenues have continued to decrease as a result 
of tighter expense controls and efforts to streamline the Company's 
operations.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense 
was $5.3 million in the first six months of  1997, compared to $5.7 million 
in the first six months of 1996. As a percent of revenues, depreciation and 
amortization expense declined to 5.2% in the first six months of  1997 from 
6.8% in the prior year period. This decrease is partially attributable to the 
increase in revenues from the prior year period. In addition, depreciation 
and amortization expense decreased $362,000 compared to the first six months 
of 1996. This decrease is primarily attributable to the $1.8 million 
write-off of certain computer equipment, customer lists and goodwill as part 
of a fourth quarter fiscal 1996 restructuring charge.

INCOME (LOSS) FROM CONTINUING OPERATIONS
     Income from continuing operations in the first six months of 1997 
increased to $4.7 million for the first six months of  1997, compared to a 
loss of $1.9 million in the first six months of  1996. The continued 
improvement in operations is primarily attributable to the increase in 
revenues and the decrease in SG&A expenses as a percentage of revenues, both 
of which are discussed above.

OTHER EXPENSE, NET
     Net other expense decreased slightly to $351,000 in the first six months 
of 1997 from $401,000 in the first six months of  1996. This decrease is 
primarily attributable to other miscellaneous income recognized in the second 
quarter of 1997.

INCOME TAXES
     The Company's effective tax rate is higher than the federal statutory 
rate due to the addition of state income taxes and certain deductions taken 
for financial reporting purposes which are not deductible for federal income 
tax purposes. The effective tax rate increased to 40.5% in the first six 
months of 1997 from 17.0% in the first six months of 1996 due to the 
graduated federal income tax rate structure. 

                                       13

<PAGE>

NET INCOME
      The Company reported net income of $2.6 million in the first six months 
of 1997 compared to net income of $7.0 million in the first six months of 
1996. This decrease is attributable to the spin-off of Billing, which 
provided $8.9 million of net income from discontinued operations in the first 
six months of 1996.

EFFECTS OF SPIN-OFF OF BILLING GROUP BUSINESS

     The Consolidated Statements of Income included in this report reflect 
the continuing operations of the Company for the three and six-month periods 
ended March 31, 1997, and continuing operations and discontinued operations 
of the Company for the three and six-month periods ended March 31, 1996. 
Included below is supplemental unaudited pro forma financial information that 
management believes is important to provide an understanding of the results 
of the Company on a stand-alone basis.  Consolidated Pro Forma Statements of 
Income are presented below for the three and six-month periods ended March 
31, 1996. These unaudited Consolidated Pro Forma Statements of Income are 
based on the historical statements of that period adjusted to reflect a pro 
forma benefit for income taxes at a 42% tax rate reflective of the Company's 
three-year historical tax rate. The unaudited Consolidated Pro Forma 
Statements of Income give effect to the spin-off as if it had occurred on 
September 30, 1995. For comparative purposes, the Company's historical 
Interim Consolidated Statements of Income for the three and six-month periods 
ended March 31, 1997, are also included below.

     The unaudited consolidated pro forma financial information is presented 
for informational purposes only and should be read in conjunction with the 
Company's historical Interim Consolidated Financial Statements and Notes 
thereto and "Management's Discussion and Analysis of Financial Condition and 
Results of Operations" set forth herein. The unaudited Consolidated Pro Forma 
Statements of Income of the Company reflect, in management's opinion, all 
adjustments necessary to fairly state the pro forma results of operations for 
the periods presented and to make the unaudited pro forma statements not 
misleading.

                                       14
<PAGE>
                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES  
                  CONSOLIDATED PRO FORMA STATEMENTS OF INCOME 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  
                                  (UNAUDITED)                 
<TABLE>
                                                      THREE MONTHS ENDED        SIX MONTHS ENDED  
                                                           MARCH 31,                 MARCH 31,    
                                                      -------------------     --------------------
                                                        1996        1997        1996         1997 
                                                      ---------    ------     ---------     ------
                                                      PRO FORMA    ACTUAL     PRO FORMA     ACTUAL
<S>                                                   <C>          <C>        <C>          <C>   
Operating revenues:                                                                               
   Direct dial long distance services................  $29,046     $39,732     $54,080     $ 75,107
   Operator services.................................   14,609      13,240      29,283       26,612
   Local services....................................        0         196           0          196
                                                       -------     -------     -------     --------
      Total operating revenues.......................   43,655      53,168      83,363      101,915
Cost of services.....................................   28,875      35,516      55,261       67,497
                                                       -------     -------     -------     --------
   Gross profit......................................   14,780      17,652      28,102       34,418
Selling, general and administrative expense..........   12,929      12,423      24,311       24,354
Depreciation and amortization expense................    2,938       2,704       5,709        5,347
                                                       -------     -------     -------     --------
Income (loss) from operations........................   (1,087)      2,525      (1,918)       4,717
Other expense, net...................................     (215)       (137)       (401)        (351)
                                                       -------     -------     -------     --------
Income (loss) before income tax benefit (provision)..   (1,302)      2,388      (2,319)       4,366
Income tax benefit (provision).......................      547        (943)        975       (1,768)
                                                       -------     -------     -------     --------
Net income (loss)....................................  $  (755)    $ 1,445     $(1,344)    $  2,598
                                                       -------     -------     -------     --------
                                                       -------     -------     -------     --------
Net income (loss) per common share...................  $ (0.05)    $  0.09     $ (0.09)    $   0.16
Weighted average common shares and common share 
equivalents outstanding..............................   15,189      16,423      15,021       16,286
</TABLE>
                                       15
<PAGE>

OUTLOOK  

          The statements contained in this Outlook are based on management's 
current expectations. These statements are forward-looking, and actual 
results may differ materially.

     The industry in which the Company operates is very competitive and is 
characterized by rapid change. In addition, the Company has faced, and 
continues to face, regulatory issues that have affected or that may affect 
operating revenues and operating profit. The continued success of the Company 
is dependent on its ability to adapt to these competitive and regulatory 
changes. In developing strategies to achieve continued growth in operating 
revenues and operating profits, the Company anticipates continuing geographic 
expansion, expanding its product offerings and controlling costs to improve 
gross margins and reduce SG&A expense as a percentage of revenue. 

     The Company continues to evaluate and take actions to improve the 
profitability of its existing products through, among other things, a 
regionalized approach to pricing, to identify new products to fully utilize 
the Company's existing sales distribution channels and to evaluate programs 
that are expected to increase revenues through partnerships with independent 
sales agents. In December 1996 and February 1997, management expanded product 
offerings to include Internet access and local access services, respectively. 
Furthermore, the Company is in the process of expanding product offerings to 
include paging, cellular, integrated services digital network ("ISDN") and 
frame relay services in selected markets within the next 12 to 18 months. The 
Company is expanding its direct dial long distance services residential 
customer base by offering long distance services to employees of commercial 
customers. In addition, due to the Telecommunications Act of 1996, which 
requires RBOCs desiring to enter the long distance services market to, among 
other things, open their networks to competition on a local basis as well as 
establish separate subsidiaries through which they can offer in-region long 
distance services, the Company's opportunities in the operator services 
market have expanded. In addition to the 350,000 private pay telephones the 
Company has traditionally marketed its services to, operator, long distance 
and local services will now be marketed to an additional 1.7 million public 
pay telephones, or to a total pay telephone market of approximately 2.0 
million.  The Company is currently developing new products and redesigning 
existing products to support the expanded market. The Company expects that 
both the expanding operator services market opportunity and the expansion of 
product offerings will increase revenues, as well as strengthen customer 
relationships and increase customer retention. However, as the Company is in 
the early stages of its marketing efforts, the revenue increase cannot be 
accurately predicted and may not be material to the Company's financial 
position or results of operations. 

     Management believes that there are opportunities for continued 
geographic expansion through acquisition and continued development of the 
Company's network. The Company believes that its base of operator services 
business affords it the opportunity to expand its direct dial long distance 
and local services on a more cost effective basis than many of its 
competitors. The Company continues to evaluate acquisition candidates in 
strategic geographic areas to expand its market.  Acquisition activity is 
focused primarily on small to medium-sized companies that will grow the 
Company's direct dial long distance business. To expand its footprint 
nationally over the next several years, management is considering and will 
continue to consider new investments in switching and related networking 
equipment. In January 1997, the Company purchased a digital switch in 
Atlanta, Georgia, and completed the acquisition of Omni Communications, Inc. 
("Omni"), a regional direct dial long distance service provider headquartered 
in Palm Beach Gardens, Florida. The Omni acquisition, although not material 
to the Company's financial position or results of operations, was 
strategically planned to increase the Company's presence in the Southeast 
region of the United States as it brings to the Company a high quality 
customer base concentrated in Florida. Omni's existing customer base 
complements the Company's network expansion strategy, as Omni's customers are 
being serviced directly by the recently purchased digital switch discussed 
above.

     The Company believes that the introduction of the local service product 
provides the Company a large opportunity for growth. The local services 
industry in the United States is estimated to be a $95 billion market. The 
Company is aggressively expanding into the local service business and has 
signed resale agreements with three RBOCs covering 15 states and 
interconnection agreements with two RBOCs covering six states. The Company 
believes that it has the potential to capitalize on its relationship with 
existing customers to bundle the local product with its existing products and 
services. These factors will enable the Company to quickly and efficiently 
enter the local services market in targeted areas. The Company's strategy is 
to roll out three product offerings over a six-month period. The first is a 
resale product targeted to the Company's private pay telephone customers. The 
Company's existing relationship with private pay telephone customers 

                                       16

<PAGE>

provides a unique opportunity for the Company. The Company has the potential 
to provide local access to a large volume of phone lines, yet a limited 
number of customers. This product was offered in the second quarter of 1997 
and generated $196,000 of revenue in that quarter. In the third quarter of 
1997, a resale local product will be offered to commercial customers. This 
product will be offered in targeted markets where the Company has an existing 
high concentration of long distance customers. This strategy should provide 
the Company a higher than average sales success rate and increase customer 
retention. In addition, it should enable the Company to more quickly attain 
the critical mass necessary to justify a capital investment in local 
switching equipment. The third product, a switched local product, will be 
offered to commercial and pay telephone customers in selected markets in the 
fourth quarter of 1997. The bundling of these services with operator and long 
distance services will enhance the Company's product offerings and provide 
new and existing customers with the integrated communication services they 
desire. Initially, all three products will be sold into the Company's 
existing customer base in an effort to leverage existing strong relationships 
and minimize SG&A expenses. The Company anticipates that it could have 
approximately 30,000 pay telephones and more than 60,000 commercial lines on 
its local service products by the end of fiscal 1998.

     The Company has implemented a number of actions designed to improve 
overall profitability and reduce the Company's cost structure. With regard to 
improving the Company's gross margins, management is focused on maximizing 
network efficiencies by implementing technological improvements and reducing 
unit costs. In November 1995, the Company joined the Associated Communication 
Companies of America ("ACCA"), a cooperative that provides members with 
opportunities to pool purchasing power to acquire lower transmission rates 
from interexchange carriers and discounts on switching equipment purchases 
through volume discounts and to work in partnership with other members to 
capitalize on resource sharing arrangements such as switch partitioning and 
network sharing.  The Company already has realized, from this arrangement, 
lower network costs and expects continued benefits as the organization 
broadens its member and vendor base.

     In an effort to improve sales force productivity, streamline functional 
processes and reduce future SG&A expenses, the Company has implemented 
several technologically advanced tools. An example of one such implementation 
is the Company's recent deployment of notebook computers to the sales force. 
These notebook computers have software that allows the Company's sales force 
to quickly prepare sales proposals and make enhanced marketing presentations 
on site at customer locations. In addition, once a proposal has been accepted 
by the customer, the sales force will use the notebook computer to 
electronically transmit the order information into the Company's centralized 
order system automatically. This sales automation tool will not only 
accelerate the Company's revenue flow as customer orders will be received on 
an on-line, real-time basis, but should also streamline the sales and order 
processing functions and thus reduce SG&A expenses. In addition, management 
has streamlined and reorganized certain corporate, administrative and 
overhead functions to align its infrastructure with the smaller operation 
that resulted from the spin-off.

     Over the past several years, the Company has undertaken a program of 
developing new products and expanding its existing service offerings, 
geographic focus and network.  In connection with these new products and 
services, the Company has made significant investments in circuitry, switches 
and related equipment and software. These investments, generally, are timed 
to coincide closely with anticipated revenue growth.  In addition, the 
Company continues to increase its sales and marketing, customer support, 
network operations and field services commitments in anticipation of the 
expansion of its customer base in targeted geographic markets. The Company 
expects to continue to expand the breadth and scale of its network and 
related sales and marketing, customer support and operations activities. The 
Company attempts to carefully plan these expansion efforts to minimize the 
effect on SG&A expenses; however, these expansion efforts could cause the 
Company to incur significant increases in expenses, from time to time, in 
anticipation of potential future growth in the Company's customer base and 
targeted geographic markets.

     On February 8, 1996, President Clinton signed the Telecommunications Act 
of 1996 ("the Act") into law.  The new law allows the RBOCs to petition their 
respective "in-region" state regulatory agencies to seek authority from the 
FCC to allow the applicant RBOC to provide long distance services in 
competition with the Company. To obtain this authority, each state agency is 
required to certify to the FCC that the applicant RBOC has satisfied a 
legislative "checklist" that outlines the steps required for an RBOC to open 
its network to competition on a local basis, which would allow the Company to 
offer local service in RBOC service areas. It is reasonable to expect that 
the conditions for RBOC entry will be met in the near future, and carriers in 
the interLATA long distance business today, such as the Company, 

                                       17

<PAGE>

will encounter new, formidable competition. The viability of competition in 
the local market depends greatly upon the conditions under which such service 
is made available by the RBOCs. Local network pricing and contract 
requirement decisions promulgated by the FCC in their Interconnection Order 
released in August 1996 are currently under appeal in the Eighth Circuit 
Court of Appeals. The outcome of these appeals will have significant 
influence on the Company's strategy in entering the local market. 
Additionally, as a result of the Act, the FCC has undertaken to restructure 
the means by which long distance access services are priced, and the manner 
in which universal service subsidies are collected and re-distributed. The 
charges currently assessed in support of these subsidies are a significant 
component of the Company's overall line costs. Changes in this structure will 
be reflected in the Company's network costs.  The Company cannot predict 
whether the ultimate dispensation of the FCC's rulemakings or adjudication of 
the aforementioned appeals will have a material impact upon the Company's 
financial position or results of operations. The continued success of the 
Company is dependent on its ability to adapt to these competitive and 
regulatory changes.

     The Company's future results of operations and the other forward-looking 
statements contained in this Outlook, in particular the statements regarding 
revenue growth and reducing cost structure, involve a number of risks and 
uncertainties. In addition to the factors discussed above, other factors that 
could cause actual results to differ materially are the following: business 
conditions and the general economy, regulatory developments, competitive 
factors, introduction and acceptance of new products, pricing pressures, 
availability of leased network facilities, risk of collection of accounts 
receivable, technological advancements, regulatory factors, litigation and 
other factors as discussed in the cautionary statements and elsewhere herein.

     The Company believes that it has the competitive product offerings, 
personnel and financial resources for continued business success; however, 
future revenues, costs and profits all are influenced by a number of factors 
and are subject to certain risks and uncertainties, as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash balance was $8.8 million at  both March 31, 1997 and 
September 30, 1996. Working capital was $22.0 million at March 31, 1997, 
compared to $20.1 million at September 30, 1996. The Company's current ratio 
was 1.7:1 at both March 31, 1997 and September 30, 1996.  Additionally, the 
Company's cash flow provided by continuing operations was $6.3 million for 
the six months ended March 31, 1997, as compared to $8.1 million for the six 
months ended March 31, 1996. Refer to the Consolidated Statements of Cash 
Flows on page five of this Form 10-Q for a detailed account of the Company's 
cash flow activity.

     Capital expenditures amounted to approximately $7.8 million during the 
six months ended March 31, 1997. These expenditures were related primarily to 
the purchase of telecommunications equipment, computer equipment and 
software, and office furniture. During the remaining six months of fiscal 
1997, the Company anticipates capital expenditures of $7.0 million to $9.0 
million to service the Company's projected growth. Approximately $5.0 million 
to $6.0 million of these capital expenditures are expected to be purchases of 
telecommunications equipment, approximately $2.0 million to $3.0 million are 
expected to be purchases of computer hardware and software to develop systems 
to support the anticipated growth of the Company's business and the remainder 
is expected to be for purchases of office furniture and equipment. The 
Company anticipates financing these capital expenditures primarily through 
term notes with various lending institutions. The Company's operations and 
expansion into new geographic markets will continue to require substantial 
capital investment for the development and procurement of transmission 
facilities and telecommunications and office equipment. In addition, any 
acquisitions that the Company may consummate may require substantial capital 
investment. The Company believes that it has the ability to continue to 
secure long-term equipment financing and that this ability, combined with 
cash flow generated from operations and available borrowing capacity under 
its existing credit facilities, will be sufficient to fund capital 
expenditures, working capital needs and debt repayment requirements for the 
foreseeable future. Although line of credit commitments have been made by 
various lenders for equipment purchases, there is no assurance that the 
Company will continue to be able to obtain satisfactory financing for these 
capital expenditures and investments.
     
     The Company has equipment financing facilities with several lenders for 
a total of $16.0 million. At March 31, 1997, the Company had $3.3 million 
borrowed under these facilities. The Company also has a $5.0 million 
revolving credit

                                       18

<PAGE>

receivable financing facility with Billing, which allows the Company to 
borrow against its own operator services accounts receivable. At March 31, 
1997, the Company did not have any amounts borrowed under this facility. In 
addition, the Company has a $10.0 million credit receivable financing 
facility which allows the Company to borrow against its own direct dial long 
distance services accounts receivable. At March 31, 1997, the Company did not 
have any amounts borrowed under this facility.

          The Company continually evaluates business opportunities, including 
potential acquisitions. The primary focus of the Company's acquisition 
activities is to make additional acquisitions that will grow the Company's 
direct dial long distance business.  One or more of such acquisitions could 
result in a substantial change in the Company's operations and financial 
condition. The success of the Company's acquisition activities will depend, 
among other things, on the availability of acquisition candidates, the 
availability of funds to finance acquisitions and the availability of 
management resources to oversee the operation of acquired businesses. As 
consideration for any acquisitions, the Company may issue common stock, 
preferred stock, convertible debt or other securities, in addition to or in 
lieu of the payment of cash, that could result in dilution of the percentage 
ownership of public stockholders. The Company does not intend to seek 
stockholder approval for any such acquisitions or security issuances unless 
required by applicable laws or regulations.

                                       19

<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Company is involved in various claims, legal actions and regulatory 
proceedings arising in the ordinary course of business.  The Company believes 
it is unlikely that the final outcome of any of the claims or proceedings to 
which the Company is a party would have a material adverse effect on the 
Company's financial position or results of operations; however, due to the 
inherent uncertainty of litigation, there can be no assurance that the 
resolution of any particular claim or proceeding would not have a material 
adverse effect on the Company's results of operations for the fiscal period 
in which such resolution occurred. 

ITEM 4.  SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Company's Annual Meeting of Stockholders held on February 25, 
1997, the following members were elected to the Board of Directors:

                                       Votes For   Votes Withheld
                                       ----------  --------------

Parris H. Holmes, Jr.................  13,904,345      140,288
F. Gardner Parker....................  13,904,345      140,288

     Continuing directors not standing for re-election until the 1998 and 
1999 Annual Meetings of Stockholders are Larry M. James (1998), Gary D. 
Becker (1999) and Charles E. Amato (1999).

     The following proposals were approved at the Company's Annual Meeting:

                                       Votes For  Votes Against  Votes Abstained
                                       ---------- -------------  ---------------
Amendments to the 1993 Non-Employee  
 Director Plan of U.S. Long Distance 
 Corp................................. 10,701,752   2,684,730        170,110    
Ratification of outstanding stock 
 option grant to Parris H. Holmes, Jr. 10,733,912   2,351,288        152,786    
Ratification of Arthur Andersen LLP as 
 independent public accountants....... 13,917,457      64,330         64,698    

                                       20
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits: 

     The exhibits listed below are filed as part of or incorporated by 
reference in this report. Where such filing is made by incorporation by 
reference to a previously filed document, such document is identified in 
parentheses.

  EXHIBIT 
  NUMBER                            DESCRIPTION 
  -------                           -----------
   3.1     Restated Certificate of Incorporation (Exhibit 3.1 to Form 10-K 
           for the Fiscal Year Ended September 30, 1996) 
   3.2     Bylaws, as amended (Exhibit 3.2 to Form 10-K for the Fiscal 
           Year Ended September 30, 1996) 
   4.1     Form of Certificate Evidencing Common Stock (Exhibit 4.1 to 
           Form 10-K for the Fiscal Year Ended September 30, 1996) 
 10.38     Office Lease Agreement entered into on March 14, 1997, and 
           effective April 1, 1997, by and between U.S. Long Distance, Inc. 
           and Nowlin Partners (filed herewith) 
 11.1      Computation of Earnings Per Share (filed herewith) 

 27.1      Financial Data Schedule (filed herewith) 

     (b)  Current Reports on Form 8-K: 
     
          None.
                                       21
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as 
amended, the Registrant has duly caused this report to be signed on its 
behalf by the undersigned thereunto duly authorized. 

                              U.S. LONG DISTANCE CORP.
                                     (Registrant)

Date:  May 12, 1997                       By: /s/  PHILLIP J. STORIN 
                                             ------------------------------
                                                 Phillip J. Storin 
                                               SENIOR VICE PRESIDENT  
                                              CHIEF FINANCIAL OFFICER 
                                           (Duly authorized and Principal 
                                                 Financial Officer) 

Date:  May 12, 1997                       By: /s/  PATRICK M. AELVOET 
                                             ------------------------------
                                                Patrick M. Aelvoet 
                                                 VICE PRESIDENT  
                                               CORPORATE CONTROLLER 
                              (Duly authorized and Principal Accounting Officer)

                                       22