<PAGE>


                        SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                    FORM 10-K

[X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                [FEE REQUIRED]

                    For the Fiscal Year ended:  MARCH 31, 1997

                                        OR

[  ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934
                                [NO FEE REQUIRED]

            For the transition period from ___________ to ___________

                           Commission File No. 0-23172

                            NETWORK LONG DISTANCE, INC.             
              (Exact Name of Registrant as Specified in its Charter)

                DELAWARE                                 72-1122018       
     -------------------------------              ------------------------
     (State or Other Jurisdiction of              (I.R.S. Employer Identi-
     Incorporation or Organization)                   fication Number)

                             11817 CANON BLVD., SUITE 600
                             NEWPORT NEWS, VIRGINIA 23606      
                       ----------------------------------------
                       (Address of Principal Executive Offices,
                                 Including Zip Code)

Registrant's telephone number, including area code:  (757) 873-1040

Securities registered pursuant to Section 12(b) of the Act:  NONE.

Securities registered pursuant to Section 12(g) of the Act:  YES

                       Common Stock, .0001 Par Value Per Share
                                   (Title of Class)

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.
                                   Yes  X    No    
                                       ---      ---

As of June 25, 1997, 13,094,088 shares of common stock were outstanding.  The
aggregate market value of the common stock of Network Long Distance, Inc. (the
"Company") held by nonaffiliates as of June 25, 1997 was $48,944,795.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

                   DOCUMENTS INCORPORATED BY REFERENCE:

     Part III incorporates certain information by reference from the 
Registrant's definitive proxy statement for the annual meeting of stockholder 
which will be filed no later than 120 days after the close of the 
Registrant's fiscal year ended March 31, 1997.

This Form 10-K consists of __ pages.  Exhibits are indexed at page 18.

<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

GENERAL

Network Long Distance, Inc., a Delaware corporation, directly and through its 
subsidiaries ("the Company"), is a provider of long distance and other 
telecommunication services to end-users, independent agents, and other long 
distance companies, with a primary concentration on small to medium-sized 
businesses.

The Company is recognized as a pioneer in the U.S. telecommunications 
industry, as its predecessor company was established in and has been in 
continuous operation since 1979, a full five years prior to the court-ordered 
break-up of the AT&T/Bell System, an event generally regarded as the "birth" 
of the competitive long distance industry in the U.S.

Over the past three  years, the company has expanded substantially through 
mergers, acquisitions, and its own sales programs to become a nationwide, 
telecommunications provider. The Company transmits long distance telephone 
calls over various types of transmission circuits leased from other 
telecommunications carriers at fixed or variable rates.  Calls may be routed 
through one the Company's four (4) switching centers, which select the least 
expensive among the various available transmission alternatives to complete 
the call or calls can be completed by various underlying carriers.  The 
Company provides billing, customer service and other features relative to the 
call.  Profits are based on the Company's ability to charge rates in excess 
of the Company's cost of transmitting calls over the transmission lines 
selected by the switching equipment or in excess of underlying carrier costs.

The Company offers a wide range of products and services including "1 plus" 
domestic long distance service, inbound (800) service, dedicated access and 
private line service, travel cards, conference calling, paging, prepaid 
calling cards, wireless services and national internet access service.

The long distance industry is dominated by those companies which comprise the 
first tier of the industry, those companies with annualized revenues in 
excess of $1 billion, such as AT&T, MCI, Sprint, and WorldCom.  The second 
tier is comprised of companies under $1 billion but in excess of $100 million 
in annualized revenues.  The third tier consists of those companies with 
annualized revenues of under $100 million.  The Company is a second tier 
company as a result of its acquisitions completed subsequent to March 31, 
1997 (see Mergers).

HISTORY

The Company was formed on December 3, 1987, under the name Harmoney Street 
Capital, Inc. and was primarily in the business of seeking business 
opportunities and a merger candidate.  To this end, on December 19, 1990, the 
Company acquired 100% of the outstanding shares of M.M. Ross, Inc., a private 
Louisiana corporation formed in 1979.  Since 1990, the Company has continued 
to expand its services and customer base and is now primarily a long distance 
telecommunications company.  Accordingly, in August, 1991, the Company 
changed its name to Network Long Distance, Inc. to more accurately reflect 
its operations.

RECENT DEVELOPMENTS

    MERGERS

On June 30, 1996, Network Long Distance, Inc. (Network), merged with Long 
Distance Telecom, Inc. dba Blue Ridge Telephone (Blue Ridge) and in 
connection therewith issued 337,079 shares of common stock for all of Blue 
Ridge's common stock.  On November 15, 1996, Network merged with United Wats, 
Inc. (United Wats) and in connection therewith issued 2,277,780 shares of 
common stock for all of United Wats' common stock.  (Both transactions will 
be collectively referred to as the "Mergers.")  The Mergers were accounted 
for as pooling-of-interests.

Subsequent to March 31, 1997, the Company made several strategic moves 
towards accomplishing its goals and to better position itself to remain 
competitive in the telecommunications industry.

                                      -2-
<PAGE>

During May of 1997, the Company completed two mergers; Eastern Telecom, 
International (ETI) for $1.5 million cash and the issuance of approximately 
3,633,000 shares of common stock and National Teleservices, Inc (NTI) by 
issuing approximately 3,274,000 shares of common stock.  As a result of these 
transactions, the Company positioned itself within the second tier (over $100 
million in annual sales) of the industry based on pro forma fiscal 1997 
revenues.  The acquisition of ETI will be accounted for as a purchase while 
the merger with NTI will be accounted for as a pooling-of-interests.  (Both 
transactions will collectively be known as the "Subsequent Mergers".)

ETI is a switch-based inter-exchange carrier located in Newport News, 
Virginia and operates primarily along the east coast of the United States.  
It has expanded rapidly through the deployment of an aggressive direct sales 
program.  It operates a Northern Telecom DMS 250 digital switch which is 
located in Washington, D.C., and offers "1" plus direct dialing, "0" plus 
operator assisted calls, 800/888 toll free service, dedicated lines, calling 
cards, international service, prepaid calling cards, paging, internet access, 
and conference calling.

NTI is a switch-based inter-exchange carrier located in Winona, Minnesota, 
and operates primarily in the mid-western United States.  As with ETI, it has 
also expanded rapidly through direct sales.  It operates a DEC 600 digital 
switch located in Winona and offers a full range of telecommunication 
products and services.

The following unaudited pro forma combined results of operations assume the 
acquisitions of ETI, NTI and other acquisitions consummated during fiscal 1997 
were completed on April 1, 1996:

                                               Year Ended
                                             March 31, 1997
                                             --------------
                 Revenue                     $108,018,000
                 Net loss                      (8,735,000)
                 Loss per share                     (0.68)

These pro forma amounts represent the historical operating results of these 
acquired entities combined with those of the Company with appropriate 
adjustments which give effect to interest expense, amortization and the 
common shares issued. These pro forma amounts are not necessarily indicative 
of the operating results that would have occurred if the combined entities 
had been operated by current management during the period presented because 
these amounts do not reflect full network optimization and the synergistic 
effect on operating, selling, general and administrative expenses; nor do 
they purport to indicate results which may be attained in the future.

Pro forma earnings before interest, taxes, depreciation, amortization and 
non-cash provisions to reduce the carrying value of certain intangible assets 
(EBITDA) were $3,289,000. (Pro forma EBITDA is provided because EBITDA is a 
measure commonly used in the industry. EBITDA is not a measurement of 
financial performance under generally accepted accounting principles and 
should not be considered an alternative to net income as a measure of 
performance or to cash flow as a measure of liquidity. EBITDA is not 
necessarily comparable with similarly titled measures for other companies.)

    CONSOLIDATION OF OPERATIONS

After completion of the above two transactions, the Company was made up of 
five independent operating entities; Network Long Distance, Inc., United 
Wats, Blue Ridge, ETI and NTI.  The Company has determined to undertake the 
consolidation of the operations of these entities.

Included in this plan is the consolidation of all corporate functions 
including management, accounting and finance, billing and networking 
functions, and certain customer service and support functions.  The 
consolidation of these functions is scheduled to take place during the first 
two quarters of fiscal year 1998.

In May 1997, the Board of Directors elected John D. Crawford to the position 
of Chairman and Chief Executive Officer.  Mr. Crawford previously served in 
this capacity with ETI.  Timothy A. Barton, who was previously elected 
President, will continue in this capacity.  Mr. Barton previously served in 
this capacity with United Wats.  Thomas G. Keefe was elected Chief Financial 
Officer and Treasurer of the Company.  Mr. Keefe previously served in this 
capacity with ETI.  John V. Leaf was elected to the position of Secretary.  
Mr. Leaf previously served as President and CEO of NTI.  The primary focus of 
the Board of Directors of the Company was to put into place a management team 
which it believed could complete the overall consolidation of the operating 
companies and to develop and implement a strategic plan which will allow the 
Company to remain competitive in the industry.

In addition to management changes, there have been several changes to the 
Board of Directors of the Company.  John D. Crawford, Thomas G. Keefe, John 
V. Leaf, and Albert A. Woodward, an attorney with the firm of Maun and Simon 
in Minneapolis, MN, have joined the Board.  Marc I. Becker and Dr. Joseph M. 
Edelman have resigned from the Board.

    STRATEGIC PLAN

A long standing goal of the Company has been to reach a volume of revenues 
that would enable it to be classified as a second tier telecommunications 
company with annual revenues in excess of $100 million. As a result of the 
acquisitions of ETI and NTI subsequent to March 31, 1997, pro forma annual 
revenues exceeded $108 million for the year ended March 31, 1997. Based on 
the pro forma revenues, the Company has achieved its objective and will focus 
its future efforts to improve profitability and cash flows while continuing 
to grow revenues. To achieve these objectives, the Company has implemented 
plans to consolidate its operations as discussed under "Consolidation of 
Operations."

                                      -3-
<PAGE>

    REDUCTION OF TRANSMISSION COSTS

Through increased economies of scale, expansion of "on-net" origination and 
termination of traffic, and greater purchasing power resulting from the 
mergers, the Company expects to reduce transmission costs as a percentage of 
revenue.

    REVENUE GROWTH

To continue its revenue growth, the Company will focus its efforts on 
internal sales.  Over the past three years, the Company has primarily grown 
through mergers and acquisitions.  Although the Company will continue to seek 
merger opportunities, this strategy is not expected to be the primary vehicle 
for revenue growth.  Currently, the Company has three distinct sales 
distribution channels through which the Company markets it products and 
services:  Retail or direct business sales, agents, and association programs, 
(see  SALES AND MARKETING).  The Company plans to direct its attention to the 
business retail and association program distribution channels in an effort to 
aggressively grow revenue through internal sales.   

SALES AND MARKETING

The Company has three primary sales distribution channels within its long 
distance telecommunications marketing program: the agent, business retail, 
and association programs.  The Company primarily focuses its efforts and 
expansion philosophy on the retail and association program channels, where 
the Company believes it can realize greater profit margins and maintain 
better control of its customer base.  Approximately fifty percent of all 
employees are direct business retail sales personnel.

    BUSINESS RETAIL

The Company's retail division currently concentrates on commercial customers, 
which use long distance services more frequently on weekdays during normal 
business hours, as compared to residential users who tend to place calls more 
frequently at night and on weekends when rates are lower.  The Company 
believes that commercial customers tend to use long distance services more 
often and generate more billable minutes than residential users.  The Company 
currently has retail sales offices in Louisiana, Virginia, Minnesota, 
Wisconsin, Iowa, South Dakota, North Dakota, Nebraska, New Jersey, 
Pennsylvania, Maryland, District of Columbia and Illinois.  The Company 
primarily targets commercial customers with monthly phone charges of 
approximately $200 to $10,000.  The Company plans to expand and further 
develop its retail sales force through the hiring of additional 
representatives. 

    ASSOCIATION PROGRAMS

The Company has a program whereby it establishes exclusive marketing 
agreements with various trade or business associations to market its products 
and services to the members of the association.  Under this program the 
Company, in conjunction with the association, will solicit the members of the 
association to subscribe to the services of the Company primarily through 
telemarketing and direct mail campaigns.  In exchange, the Company pays the 
association a royalty based on the level of monthly revenues generated by the 
members of the association.  

    AGENT
    
Master agents sign non-exclusive contracts with the Company to represent the 
Company and sell its long distance services to end-users.  The agents are 
paid a variable commission on each service sold.  The Company intends to 
maintain this channel, but will primarily devote its marketing resources in 
the future to its business retail and association programs.

                                      -4-
<PAGE>

RATES AND CHARGES

Management expects that its rates will generally remain competitive with 
rates charged by long distance carriers such as AT&T, MCI and Sprint and 
other common carriers.  The savings realized by customers of the Company and 
other long distance carriers may decrease in the future if, and to the 
extent, AT&T further reduces its rates.  See "Competition" and "Regulation."

The Company charges its customers on the basis of minutes or partial minutes 
of use at rates which may vary with the distance, duration, time of day and 
type of call.  The Company performs its own billing functions for most of its 
customer base, and also uses independent billing companies to invoice certain 
customers in conjunction with their local and long distance telephone bills.


FACILITIES

The Company's facilities are 100% leased, digital fiber optic transmission 
facilities.  Primary fiber optic vendors for the Company include WilTel and 
MCI. These facilities are utilized primarily by the Company for the 
provisioning of its own telecommunications network.  Facilities are also 
leased on behalf of the Company's customers to provide private customer 
connections to the network.  The Company leases these facilities at rates 
which are less than those charged to its customers for the use of these 
facilities.  In addition to the vendors named above, facilities from Bell 
Atlantic, Bell South, Ameritech, US West, NYNEX and MFS are an integral part 
of the Company's network.

The continued availability of cost-effective digital, fiber optic 
transmission facilities in the Company's service areas, as well as proper 
planning of the utilization of leased transmissions facilities, is critical 
to the Company's ability to provide its services on a profitable basis.

The Company contracts with other underlying telecommunications carriers to 
provide originating and terminating transmission of calls in area's where the 
Company does not deploy their own facilities.  These facilities are carrier 
facilities and do not carry a fixed monthly cost.  The Company pays the 
carrier, on a per minute basis, for any calls which are transmitted over 
these facilities.


NETWORK SWITCHING

The Company's computerized network switching equipment routes the calls to 
their destinations on a least cost route basis, over the leased transmission 
facilities.  In addition to networking, the Company's switching equipment 
verifies the customer's preassigned authorization code, or the telephone 
number called from.  It also records billing data, tests transmission 
facilities and monitors system quality and performance.  After the Subsequent 
Mergers, the Company has four switches, to which its leased and carrier 
facilities are connected.  These switches are located in Baton Rouge, 
Louisiana, Washington, D.C., Winona, Minnesota and Culpeper, Virginia.

The Company believes that digital switches are generally superior to other 
currently available types of switches.  Digital switches are able to 
interface with the digital transmission facilities leased by the Company and 
are able to handle multiple transmission channels on a single line, thereby 
reducing transmission costs.  A digital switch also provides superior quality 
and ease of maintenance.


MERGERS AND ACQUISITIONS PROGRAM

The Company has completed the acquisition of customer bases primarily located 
in Texas, New Jersey, Louisiana, New York, Nevada, Oklahoma, California, 
Utah, and Illinois.

In addition to the customer bases noted above and the mergers with ETI and 
NTI, the Company has completed mergers with Blue Ridge and United Wats.  Both 
companies have historically experienced strong internal growth from their 
respective sales distribution channels and are expected to continue these 
trends.  Although the Company plans to continue evaluating opportunities that 
may arise, the Company does not intend to solely look towards mergers and 
acquisitions to grow the Company.  (see "Recent Developments".)


COMPETITION

                                      -5-
<PAGE>

The Company competes with numerous interexchange carriers and resellers, some 
of which are substantially larger, have substantially greater financial, 
technical and marketing resources, or utilize larger transmission systems 
than the Company.  AT&T is the dominant supplier of long distance services in 
the United States InterLATA market.  The Company also competes with other 
national interexchange carriers, such as MCI, Sprint, WorldCom and regional 
long distance telecommunications companies.  Under the Telecommunications Act 
of 1996 (Telecom Act) and ensuing federal and state regulatory initiatives, 
the introduction of local exchange competition establishes the predicate for 
the Regional Bell Operating Companies (RBOCs) to provide in-region 
interexchange long distance services.  The RBOCs are currently allowed to 
offer certain "incidental" long distance service in-region and to offer 
out-of-region long distance services. Once the RBOCs are allowed to offer 
in-region long distance services, they could be in a position to offer single 
source local and long distance service.

The Company believes that the principal competitive factors affecting its 
market share are pricing, transmission quality, customer service, cost of 
underlying facilities and, to a lesser extent, value added services.

The Company believes that it competes effectively with other interexchange 
carriers and resellers in its service areas on the basis of these factors.  
The ability of the Company to compete effectively will depend upon its 
continued ability to maintain high quality, market oriented services at 
prices competitive with those charged by its competitors.

The Company's objective is to continue to expand its customer base primarily 
through its business retail and association  program marketing channels.  The 
Company believes this strategy, in conjunction with the increased purchasing 
power resulting from its recent mergers (see "Recent Developments"), will 
enable it to continue to obtain favorable contracts from its suppliers which 
will allow it to maintain adequate margins while offering highly competitive 
prices for its services.  The Company maintains its own in-house billing and 
customer service operations, which along with its ability to offer competitive
price, provides the Company the flexibility to tailor its services to meet the
ever changing communication needs of its customers.  However, no assurance can
be given that the Company's strategies will continue to be successful.

The Company expects to encounter increased competition from both the major 
communication companies and the smaller regional companies.  In addition, the 
Company may be subject to additional competition due to the enactment of the 
Telecom Act and the development of new technologies.  The telecommunications 
industry is in a period of rapid evolution marked by the introduction of new 
products and services and the changing regulatory environment.  The Company 
believes its strategies will put it in a position to continue to effectively 
compete in this industry.

GOVERNMENT REGULATION

The terms and conditions under which the Company provides telecommunications 
products and services are subject to government regulation.  Federal laws and 
Federal Communications Commission (FCC) regulations apply to interstate and 
international telecommunications, while particular state regulatory 
authorities have jurisdiction over telecommunications that originate and 
terminate within the same state.

    FEDERAL REGULATION

The Company is classified by the FCC as a non-dominant carrier, and therefore 
is subject to significantly reduced federal regulation.  After the recent 
reclassification of AT&T as a non-dominant carrier in its provisions of 
domestic services, only the Local Exchange Carriers (LECs) are classified as 
dominant carriers for the provision of interstate access services.  As a  
consequence, the FCC regulates many of the rates, charges, and services of 
the LECs to a greater degree than the Company's.  The FCC has proposed that 
the Regional Bell Operating Companies or RBOCs offering out-of-region 
interstate inter-exchange services be regulated as non-dominant carriers, as 
long as such services are offered by an affiliate of the RBOC that complies 
with certain structural separation requirements, which may make it easier for 
the RBOCs to compete directly with the Company for long distance subscribers. 
These would be the same separation requirements that currently are 
applicable to independent LECs that provide interstate inter-exchange 
services, although the FCC on March 21, 1996 initiated a rule-making 
proceeding in which it is considering whether to modify or eliminate these 
separation requirements.

Because AT&T is no longer classified as a dominant carrier, certain pricing 
restrictions that formerly applied to AT&T have been eliminated, which may 
make it easier for AT&T to compete with the Company for low volume long 
distance subscribers.  Non-dominant carriers are currently required to file 
international tariffs.  The FCC generally does not exercise direct oversight 
over cost jurisdiction and the level of charges for service of non-dominant 
carriers, 

                                      -6-
<PAGE>

such as the Company, although it has the statutory power to do so.  
Non-dominant carriers are required by statute to offer interstate and 
international services under rates, terms, and conditions that are just, 
reasonable, and not unduly discriminatory.  The FCC has the jurisdiction to 
act upon complaints filed by third parties or brought on the FCC's own motion 
against any common carrier, including non-dominant carriers, for failure to 
comply with its statutory obligations.  Additionally, the Telecom Act grants 
explicit authority to the FCC to "forbear" from regulating any 
telecommunications services provider in response to a petition and if the 
agency determines that the public interest will be served.  On October 31, 
1996, the FCC exercised this authority and released an order which, among 
other things, requires non-dominant Interexchange Carriers (IXCs) to cancel 
their currently-filed tariffs for interstate domestic services within nine 
months of the effective date of the order and prohibits such filings in the 
future.

The FCC imposes only minimal reporting requirements on non-dominant 
resellers, although the Company is subject to certain reporting, accounting, 
and record keeping obligations.  A number of these requirements are imposed, 
at least in part, on all carriers, and others are imposed on certain 
carriers, such as those whose annual operating revenues exceed $100 million.

On February 8, 1996, President Clinton signed the Telecom Act, which permits, 
without limitation, the RBOCs to provide domestic and international long 
distance services to customers located outside of the RBOCs home regions; 
permits a petitioning RBOC to provide domestic and international long 
distance service to customers within its home regions upon a finding by the 
FCC that a petitioning RBOC has satisfied certain criteria for opening up its 
local exchange network to competition and that its provision of long distance 
services would further the public interest; and remove existing barriers to 
entry into local service markets.  Additionally, there are significant 
changes in the manner in which carrier-to-carrier arrangements are regulated 
at the federal and state level; procedures to revise universal service 
standards; and, penalties for unauthorized switching of customers.  The FCC 
has instituted proceedings addressing the implementation of this legislation.

On August 8, 1996, the FCC released its First Report and Order in the Matter 
of Implementation of the Local Competition Provisions in the Telecom Act the 
FCC Interconnect Order.  In the FCC Interconnect Order, the FCC established 
nationwide rules designed to encourage new entrants to participate in the 
local service markets through interconnection with the incumbent local 
exchange carriers (ILEC), resale of the ILECs retail services and unbundled 
network elements.  These rules set the groundwork for the statutory criteria 
governing RBOC entry into the long distance market.  The Company cannot 
predict the effect such legislation or the implementing regulations will have 
on the Company or the industry.  Motions to stay implementation of the FCC 
Interconnect Order have been filed with the FCC and federal courts of appeal. 
Appeals challenging, among other things, the validity of the FCC Interconnect
Order have been filed in several federal courts of appeal and assigned to the
Eighth Circuit Court of Appeals for disposition.  The Eighth Circuit Court of
Appeals has stayed the pricing provisions of the FCC Interconnect Order.  The
United States Supreme Court has declined to review the propriety of the stay.
The Company cannot predict either the outcome of these challenges and appeals
or the eventual effect on its business or the industry in general.

On December 24, 1996, the FCC released a Notice of Proposed Rulemaking (NPRM) 
seeking to reform the FCC's current access charge policies and practices to 
comport with a competitive or potentially competitive local access service 
market.  On May 7, 1997, the FCC announced that it will issue a series of 
orders that reform Universal Services Subsidy allocations, adopt various reforms
to the existing rate structure for interstate access that are designed to reduce
access charges, over time, to more economically efficient levels and rate 
structures. In particular, the FCC adopted changes to its rate structures for
Common Line, Local Switching and Local Transport rate elements.  The FCC 
generally removed from minute-of-use access charges costs that are not incurred
on a per-minute-of-use basis, with such costs being recovered through flat 
rated charges. Additional charges and details of the FCC's actions are to be
addressed when Orders are released within the near future.  Access charges are
a principal component of the Company's transmission costs.  The Company cannot 
predict whether or not the result of this proceeding will have a material 
impact upon its financial position or results of operations.

    STATE REGULATION

The intrastate long distance telecommunications of the Company are also 
subject to various state laws and regulations, including prior certification, 
notification, and registration requirements.  Generally, the Company must 
obtain and maintain certificates of public convenience and necessity from 
regulatory authorities in most states in 

                                      -7-
<PAGE>

which it offers intrastate long distance services. In most of these 
jurisdictions the Company must also file and obtain prior regulatory approval 
of tariffs for its intrastate offerings.  Currently, the Company is certified 
and tariffed where required to provide intrastate service to customers in the 
continental United States.

There can be no assurance that the regulatory authorities in one or more of 
the states will not take action having an adverse effect on the business or 
financial condition of the Company.

RISK FACTORS

Current and prospective investors should carefully consider the following 
risk factors, together with the other information contained in this Form 
10-K, in evaluating the Company and its business.  In particular, readers 
should note that this Form 10-K contains forward-looking statements within 
the meaning of the Private Securities Litigation Reform Act of 1995 and that 
actual results could differ materially from those contemplated by such 
statements.  The factors listed below represent certain important factors the 
Company believes could cause such results to differ.  These factors are not 
intended to represent a complete list of the general or specific risks that 
may affect the Company.  It should be recognized that other risks may be 
significant, presently or in the future, and the risks set forth below may 
affect the Company to a greater extent than indicated.

    DEPENDANCE ON CARRIERS AND THE AVAILABILITY OF TRANSMISSION FACILITIES NOT
ASSURED

The Company's long distance business is dependent upon lease or resale 
arrangements with fiber-optic and digital microwave carriers for the 
transmission of calls.  The future profitability of the Company is based upon 
its ability to transmit long distance telephone calls over transmission 
facilities leased from others on a cost-effective basis.  The Company is 
currently dependent on three primary carriers, Frontier Communications 
Services, Inc., WorldCom Network Services, Inc. ("WilTel") and Sprint.  The 
Company utilizes other fiber-optic carriers to a lesser extent to supplement 
communication transport services, however, there can be no assurance that in 
the future the Company will continue to have access on an ongoing basis, to 
transmission facilities at favorable rates.

    ADVERSE EFFECT OF SERVICE INTERRUPTION

The Company's business requires that transmission and switching facilities 
and other equipment be operational 24 hours per day, 365 days per year.  Long 
distance telephone companies, including the Company, have on occasion and may 
in the future experience temporary service interruption or equipment failure, 
in some cases resulting from causes beyond their control.  Any such event 
experienced by the Company would impair the Company's ability to service its 
customers and could have a material adverse effect on the Company's business.

    RECENT LOSSES FROM OPERATIONS

The Company incurred a loss of ($7,854,000) for the fiscal year ended March 
31, 1997.  The loss for the fiscal 1997 was primarily due to the reduction in 
the carrying value of certain assets, an increase in selling, general and 
administrative expenses, and the provision for losses on accounts receivable. 
Although the Company will attempt to attain profitability as its recent 
acquisitions are integrated more fully into the Company's operations, there 
is no assurance that this will occur or that the Company will achieve, or be 
able to sustain profitable operations.

    COMPETITION RISKS

The Company faces excess competition in providing long distance 
telecommunications services.  The Company competes for InterLATA and 
InterLATA services with AT&T, MCI, Sprint and WorldCom, the LECs and other 
national and regional  IXCs, where permissible.  Certain of these companies 
have substantially greater market share and financial resources that the 
Company, and some of them are the source of communications capacity used by 
the Company to provide its own services.


                                      -8-
<PAGE>

The Company expects to encounter continued competition from major domestic
communications companies, including AT&T, MCI, Sprint and WorldCom.  In
addition, the Company may be subject to additional competition due to the
enactment of the Telecom Act, the development of new technologies and increased
availability of domestic transmission capacity.

For example, even though fiber-optic networks are now widely used for long
distance transmission, it is possible that the desirability of such networks
could be adversely affected by changing technology.  The telecommunications
industry is in a period of rapid technological evolution, marked by the
introduction of new product and service offerings and increasing satellite and
fiber-optic transmission capacity for services similar to those provided by the
Company.  The Company cannot predict which of many possible future product and
service offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and services.

Virtually all markets for telecommunications services are extremely competitive,
and the Company expects that competition will intensify in the future.  In each
of the markets in which it offers telecommunications services, the Company faces
significant competition from larger, better financed incumbent carriers.  The
Company competes with incumbent providers, which have historically dominated
their local telecommunications markets, and long distance carriers, for the
provision of long distance services.  In certain markets the incumbent provider
offers both local and long distance services.  The incumbent LECs presently have
numerous advantages as a result of their historic monopoly control of the local
exchange market.  A continuing trend toward business combinations and alliances
in the telecommunications industry may create significant new competitors to the
Company.  Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of the
Company.  The Company also faces competition in most markets in which it
operates from one or more competitors, including competitive access providers
("CAPS") operating fiber-optic networks, in some cases in conjunction with the
local cable television operator.  Each of AT&T, MCI, Sprint and WorldCom has
indicated its intention to offer local telecommunications services in major U.S.
markets using its own facilities or by resale of the LECs' or other providers'
services.  Other potential competitors include cable television companies,
wireless telephone companies, electric utilities, microwave carriers and private
networks of large end users.  In addition, the Company competes with
telecommunications management companies with respect to certain portions of its
business.

Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed.  The introduction of
such competition, however, also establishes the predicate for the RBOCs to
provide in-region interexchange long distance services.  The RBOCs are currently
allowed to offer certain "Incidental" long distance services in-region and to
offer out-of-region long distance services.  Once the RBOCs are allowed to offer
in-region long distance services, both they and the four largest long distance
carriers (AT&T, MCI, Sprint and WorldCom) will be in a position to offer single
source local and long distance service similar to that being offered by the
Company.  The Company expects that the increased competition made possible by
regulatory reform will result in certain pricing and margin pressure in the
domestic telecommunications services business.

    RAPID TECHNOLOGICAL CHANGES:  DEPENDENCE UPON PRODUCT DEVELOPMENT

The telecommunications industry is subject to rapid and significant changes in
technology.  While the Company does  not believe that, for the foreseeable
future, these changes will either materially and adversely affect the continued
use of fiber-optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireless and wireless transmission and switching technologies, on the
businesses of the Company cannot be predicted.

    RISKS OF FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE FLUCTUATIONS,
    POSSIBLE REDUCTIONS IN LIQUIDITY, AND RESTRICTIVE COVENANTS

In May 1996, the Company entered into a $14,250,000 credit facility (1997
Facility) with a bank which includes a revolving credit facility and term loan
facility.  Borrowings under the 1997 Facility were used to repay an existing
debt facility.  Borrowings under the revolving credit portion of the 1997
Facility may not exceed the lessor of $11,000,000 minus any reduction in amount
the lender may deem required or 85% of eligible receivables.  Borrowings under
the revolving facility bear interest at the prime rate plus 0.75% (9.0% at March
31, 1997). Borrowings and unpaid interest on the revolving facility are
repayable in full at maturity of the facility on June 1, 1999.  At March 31,
1997, borrowings outstanding under the revolving facility were $40,000.  Unused
borrowing


                                     -9-

<PAGE>

capacity under the revolving facility at March 31, 1997 was $6,822,000.  As
part of the 1997 Facility, the Company was also allowed to borrow $3,250,000
under a term loan facility.  The term loan is repayable in 36 equal monthly
installments of $90,278 plus accrued interest.  The term loan bears interest
at the prime rate plus 3% (11.25% at March 31, 1997).  At March 31, 1997, the
balance outstanding under the term facility was $2,437,000. Substantially all
of the assets of the Company including tangible assets, receivables and
general intangibles, the definition of which includes but is not limited to
intellectual property, business plans, business records and licenses, are
pledged as collateral under the 1997 Facility.  The 1997 Facility requires
compliance with certain financial and operating covenants which include
minimum leverage and fixed charge coverage ratios.

Because of the operating loss and resulting decline in stockholders' equity
reported by the Company for the year ended March 31, 1997, the Company was not
in compliance with certain financial covenants contained in its bank credit
facility.  Accordingly, the Company received a waiver with respect to certain of
such covenants from its lender as of March 31, 1997.  As a result of and in
connection with the merger transactions consummated in May 1997, the Company
complied with certain of the financial covenants, and has negotiated certain
amendments to the credit facility to reflect changes in financial position and
anticipated changes in business strategies and operating results associated with
such transactions.  While management, believes that the Company will be able to
comply with the renegotiated loan agreement, there can be no assurance that the
Company will not require additional waivers in the future or, if such waivers
are required, that the lender will grant them.

    DIVIDEND POLICY

The Company has paid no cash dividends on its Common Stock and has no present
intention of paying cash dividends in the foreseeable future.  It is the present
policy of the Board of Directors to retain all earnings to provide for the
growth of the company.  Payment of cash dividends in the future will depend,
among other things, upon the Company's future earnings, requirements for capital
improvements, and operating and financial conditions of the Company and other
factors deemed relevant by the Board of Directors.

    ACQUISITION INTEGRATION

A major portion of the Company's growth in recent years has resulted from
acquisitions, which involve certain operational and financial risks.
Operational risks include the possibility that an acquisition does not
ultimately provide the benefits originally anticipated by management of the
acquirer, while the acquirer continues to incur operating expenses to provide
the services formerly provided by the acquired company.  Financial risks involve
the occurrence of indebtedness by the acquirer in order to effect the
acquisition and the subsequent need to service that indebtedness.  In addition,
the issuance of stock in connection with acquisitions dilutes the voting power
and may dilute certain other interests of existing shareholders.  In carrying
out its acquisition strategy, the Company attempts to minimize the risk of
unexpected liabilities and contingencies associated with acquired businesses
through planning, investigation and negotiation, but such unexpected liabilities
may nevertheless accompany acquisitions.  There can be no assurance that the
Company will be successful in identifying attractive acquisition candidates or
completing additional acquisitions on favorable terms.

Additionally, achieving the expected benefits of the Subsequent Mergers will
depend in part upon the integration of the businesses of the Company, NTI and
ETI, in an efficient manner, and there can be no assurance that this will occur.
The transition to a combined company will require substantial attention from
management.  The division of management activities and any difficulties
encountered in the transition process could have an adverse effect on revenues
and operating results of the combined company.  In addition, the process of
combining the various organizations could cause the interruption of, or a
disruption in, the activities of any or all of the companies' businesses, which
could have a material adverse effect on their combined operations.  There can be
no assurance that the Company will realize any of the anticipated benefits of
the Subsequent Mergers.

Based on the foregoing, during fiscal 1997, the Company incurred impairment
losses of approximately $6,291,000 on the carrying value of certain intangible
assets.

    CONTINGENT LIABILITIES

The Company is subject to a number of legal and regulatory proceedings.  While
the Company believes that the possible outcome of these matters, or all of them
combined, will not have a material adverse effect on the


                                     -10-

<PAGE>

Company's consolidated results of operations or financial position, no assurance
can be given that a contrary result will not be obtained.  See Item 3 - "Legal
Proceedings".

EMPLOYEES

As of June 25, 1997, the Company had 303 full-time employees. None of the
Company's employees are represented by a union.

ITEM 2. PROPERTIES.

The Company owns a 4,500 square foot building and leases three floors,
containing approximately 22,000 square feet of a building located at 525 Florida
Street, Baton Rouge, Louisiana, 70801.  Its primary telephone number is (504)
343-3125.  In June, 1997, the Company moved its principal executive offices to
Newport News, Virginia and reduced its leased space in Baton Rouge to
approximately 15,000  square feet.

In addition to the above properties, the Company leases approximately 7,600
square feet of office space in Mission, Kansas and approximately 3,800 square
feet of office space in Culpeper, Virginia in which United Wats and Blue Ridge
operate, respectively.   Pursuant to recent mergers, the Company acquired leased
office and switch facilities from ETI and NTI (see "Recent Developments").

ITEM 3.  LEGAL PROCEEDINGS.

After the end of the fiscal year, on May 21, 1997, the Company was notified that
a Director/Shareholder of the Company has brought suit against the Company.  The
suit is related to a certain escrow agreement previously entered into with two
major shareholders of the Company.  The suit seeks the release of common stock
in the Company which was placed into escrow by the Director in relation to the
Company's initial public offering completed in February of 1994.  The number of
shares in dispute is 313,344.  The outcome of the suit and its impact on the
operations and financial condition of the Company can not be determined at this
time.  However, the Company believes that the specific criteria under which the
common stock was to be released were not met and therefore believes that the
shares should be returned to the Company and cancelled according to the
provisions of the escrow agreement.

The Company is involved in other legal proceedings generally incidental to its
business.  While results of these various legal matters contain an element of
uncertainty, the Company believes that the probable outcome of any of these
matters, or all of them combined, should not have a material adverse effect on
the Company.

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

    None


                                    -11-

<PAGE>

                                       PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a) PRINCIPAL MARKET OR MARKETS.  Since February 24, 1994, the Company's Common
    Stock has traded in the over-the-counter market and listed in the NASDAQ
    Small-Cap Market System under the symbol "NTWK".  The following table sets
    forth the high and low sales prices per share of Network Common Stock as
    reported on the Nasdaq Small-Cap Market System for the periods indicated.

                                          High        Low
                                          ----        ---
          1995
          ----
          First Quarter                  $ 8.00      $ 5.50
          Second Quarter                   8.25        7.38
          Third Quarter                    9.00        7.38
          Forth Quarter                    9.00        7.63

          1996
          ----
          First Quarter                  $ 9.38      $ 7.25
          Second Quarter                  11.25        7.63
          Third Quarter                   11.25        9.13
          Fourth Quarter                  10.00        8.88

          1997
          ----
          First Quarter                  $12.13      $ 9.13
          Second Quarter                  11.63       10.50
          Third Quarter                   11.38        7.75
          Fourth Quarter                   9.00        7.00


On June 25, 1997, the closing price for the Common Stock as reported by the
NASDAQ Small-Cap Market was $10.25 per share.

(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK.  The number of record owners
    of the Company's common stock at March 31, 1997, was approximately 225.
    This does not include shareholders who hold stock in their accounts at
    broker/dealers.

(c) DIVIDENDS.  Holders of common stock are entitled to receive such dividends
    as may be declared by the Company's Board of Directors.  No dividends have
    been paid with respect to the Company's common stock and no dividends are
    anticipated to be paid in the foreseeable future.


                                    -12-

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA:

<TABLE>
                                                                   FISCAL YEARS ENDED MARCH 31,
                                               ------------------------------------------------------------------
                                                   1997          1996          1995          1994         1993
                                               -----------   -----------   -----------   -----------   ----------
<S>                                                 <C>          <C>           <C>           <C>          <C>
Operating Results:
  Revenues                                     $59,609,135   $45,083,191   $29,374,853   $13,134,620   $6,067,903
  Operating Income (Loss)                       (8,033,833)      755,720     1,099,130       452,268      (43,980)
  Income (Loss) before extraordinary
   item and cumulative effect of
   a change in accounting principle             (7,854,429)      374,497       867,514       173,886      304,969
  Income (Loss) before cumulative effect
   of a change in accounting principle          (7,854,429)      374,497       867,514       173,886      304,969

Net Income (Loss)                               (7,854,429)      374,497       867,514       173,886      304,969
 Preferred dividend requirement                          -             -             -        31,984            -

Earnings per common share:
  Income (Loss) before extraordinary
   item and cumulative effect of
   a change in accounting principle                  (1.30)         0.07          0.19          0.04         0.07
  Income (Loss) before cumulative effect
   of a change in accounting principle               (1.30)         0.07          0.19          0.04         0.07
  Net Income (Loss)                                  (1.30)         0.07          0.19          0.04         0.07

Weighted average shares                          6,064,164     5,079,938     4,587,620     3,827,889    4,088,767

Financial Position Data:
  Total assets                                 $18,953,712   $23,311,116   $11,762,262    $1,885,818   $2,366,280
  Long-term debt (excluding current
   maturities)                                   1,454,256     3,015,619       408,031       296,783      581,447
  Stockholders' investment                       8,112,169    13,986,066     7,372,272     6,036,012      459,929
</TABLE>



ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three years ended March 31,1997. 
This information should be read in conjunction with the "Selected Financial
Data" and the Company's Consolidated Financial Statements appearing elsewhere in
this document.

GENERAL

The Company's predecessor corporations commenced operations in 1979, and since
its initial public offering in 1994, the Company has expanded substantially
through mergers, acquisitions and internal growth in its efforts to become a
nationwide telecommunications provider.

On June 30, 1996, Network Long Distance, Inc. (Network), merged with Long 
Distance Telecom, Inc. dba Blue Ridge Telephone (Blue Ridge) and in 
connection therewith issued 337,079 shares of common stock for all of Blue 
Ridge's common stock.  On November 15, 1996, Network merged with United Wats, 
Inc. (United Wats) and in connection therewith issued 2,277,780 shares of 
common stock for all of United Wats' common stock.  (Both transactions will 
be collectively referred to as the "Mergers.")  The Mergers were both 
accounted for as pooling-of-interests.

Subsequent to March 31, 1997, the Company made several strategic moves towards
accomplishing its goals and to better position itself to remain competitive in
the telecommunications industry.

During May of 1997, the Company completed two mergers; Eastern Telecom,
International (ETI) for $1.5 million cash and the issuance of approximately
3,633,000 shares of common stock and National Teleservices, Inc (NTI) by issuing
approximately 3,274,000 shares of common stock.  As a result of these
transactions, the Company positioned itself within the second tier (over $100
million in annual sales) of the industry based on pro forma fiscal 1997
revenues.  The acquisition of ETI will be accounted for as a purchase while the
merger with NTI will be accounted for as a pooling-of-interests.


                                     -13-

<PAGE>

ETI is a switch-based inter-exchange carrier located in Newport News, Va and
operates primarily along the east coast of the United States.  It has expanded
rapidly through the deployment of an aggressive direct sales program.  It
operates a Northern Telecom DMS 250 digital switch which is located in
Washington D.C. and offers "1" plus direct dialing, "0" plus operator assisted
calls, 800/888 toll free service, dedicated lines, calling cards, international
service, prepaid calling cards, paging, internet access, and conference calling.

NTI is a switch-based inter-exchange carrier located in Winona, Minnesota and
operates primarily in the mid-western United States.  As with ETI, it has also
expanded rapidly through direct sales.  It operates a DEC 600 digital switch
located in Winona and offers a full range of telecommunication products and
services.

After completion of the above two transactions, subsequent to the fiscal year
end, the Company was made up of five independent operating entities; Network
Long Distance, Inc., United Wats, Blue Ridge, ETI and NTI.  The Company has
determined to consolidate the operations of these entities subsequent to the
fiscal year end.

Included in this plan is the consolidation of all corporate functions including
management, accounting and finance, billing and networking functions, and
certain customer service and support functions.  The consolidation of these
functions is scheduled to take place during the first two quarters of fiscal
year 1998.

Certain statements set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and are subject to the safe harbor created by such section.  When
appropriate, certain factors that could cause results to differ materially from
those projected in the forward looking statements are enumerated.  This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto appearing elsewhere in this Annual
Report.

RESULTS OF OPERATIONS

The Company's operations have grown significantly over the last three years as a
result of its mergers and acquisitions program and internal growth.  Total
revenues, including excise taxes and fees, increased to $59,690,135 in 1997,
from $45,083,191 in 1996, representing a 32.4% increase.  Total revenues in 1996
increased by 53.5% from $29,374,853 in 1995.  The Company has financed this
growth primarily through cash flow from operations, equity financing, and bank
borrowings.

Billable minutes were approximately 348.0 million in 1997, an increase from 
approximately 278.5 million minutes in 1996, and approximately 155.4 million 
minutes in 1995.  Revenue per minute (RPM), representing the ratio of total 
revenue to total minutes, was approximately $0.172, $0.162 and $0.189 in 
fiscal 1997, 1996, and 1995, respectively. In 1996, the Company de-emphasized 
its reseller channel. This traffic typically carries a lower RPM than other 
types of traffic. As a result of the reduction in reseller business in 1997, 
the overall RPM increased. The decrease in fiscal 1996 when compared to 1995 
reflects rate reductions made to remain competitive in the market and 
wholesale rates provided to resellers. While rate fluctuations have affected 
the Company's revenues on a per minute basis, billable minutes have increased 
by 25.0% over 1996 billable minutes, while billable minutes from 1996 to 1995 
increased approximately 79.2%.

To maintain and improve the Company's competitive position, it may be necessary
to change the Company's rate structure.  The Company is unable to predict with
accuracy whether or when AT&T or other competitors will implement future rate
reductions or the effect of any such rate reductions on the Company's profit
margins.  The Company anticipates increased billable minutes from its various
sales distribution channels to offset the effects of any price reductions.

In addition to the switch-based network, the Company operates under negotiated
contracts with other carriers to provide a nationwide platform to originate and
terminate traffic.  The Company has contracted with marketing companies,
switchless resellers and agents throughout the United States and provides
transport, billing, customer service, and other support services.  Marketing to
these types of organizations will continue in the upcoming fiscal year.  Gross
margin percentage, defined as the ratio of the excess of revenues over
transmission costs, is expected to increase along with billable minutes as the
percentage of wholesale traffic decreases.  As of June 15, 1997, the Company is
certified and tariffed to provide service subject to jurisdictions as required
in the continental United States including the District of Columbia.

The Company and other long distance telecommunications companies are affected by
the FCC's direct regulation of the rates and operations of AT&T and certain
other interexchange carriers with which the Company competes and from which the
Company leases or may lease transmission facilities or may have underlying
contracts in place.  Consequently, reductions in the Company's rate structure,
as well as the regulatory matters affecting the telecommunications industry as a
whole, may impact the Company's future revenues and expenses.

The Company's gross margin percentage in 1997 increased over the prior year with
the transmission costs as a percent of revenues decreasing to 68.2% or $0.117
per minute in 1997, resulting in a gross margin percentage of 31.8%.  In 1996,
transmission costs were 72.2% of revenues or $0.117 per minute, resulting in a
gross margin percentage of 27.8%.  The Company's transmission costs as a percent
of revenue in 1995 were 74.3% or $0.140 per minute, which resulted in a gross
margin percentage of 25.7%.  The Company has been able to improve its gross
margin during the last three years due to its 


                                      -14-

<PAGE>

continued growth in revenues. The increase in revenues has allowed the 
Company to negotiate higher volume discounts from its underlying carriers 
thereby reducing its transmissions costs as a percent of revenues.

General and administrative and selling expenses were $15,770,990 representing
26.4% of revenues, $9,420,273 representing 20.9% of revenues, and $5,652,103
representing 19.2% of revenues for the years ended March 31, 1997, 1996, and
1995, respectively. The increase in general and administrative and selling
expenses as a percentage of revenues is primarily related to increases in
personnel costs, commissions, taxes and professional fees.  The operations of
Blue Ridge and United Wats were not consolidated during fiscal 1997 resulting in
the duplication of certain general, administrative and selling functions. 
Subsequent to March 31, 1997, the Company implemented a plan to consolidate all
corporate functions of these entities including accounting and finance, billing
and networking functions, and certain customer service and support functions. 
The consolidation of these functions is scheduled to take place during the first
two quarters of fiscal 1998.

Provision for losses on Accounts Receivable was $3,041,617 representing 5.1% of
revenues, $1,112,151 representing 2.5% of revenues, and $403,314 representing
1.4% of revenues for the years ended March 31, 1997, 1996, and 1995
respectively.  During the year ended March 31, 1997, the Company determined that
losses on certain accounts receivable acquired through acquisition transactions
were greater than expected at the time of acquisition.  As a result, the Company
charged-off or made provision for such accounts receivable to reduce the
carrying amount to the estimated realizable value.  During fiscal year 1996, the
Company reevaluated its reseller/wholesale activities generally and specifically
its relationship with certain resellers.  As a result, the Company has chosen to
de-emphasize its resellers marketing activities by reducing the number of
wholesale customers and the related wholesale accounts receivable.  In addition,
certain wholesale customers have experienced financial difficulties which impede
their ability to pay the Company on a timely basis.  Wholesale customers with
slow payment histories have been placed on specific payment plans or under lock
box agreements.  The Company has specifically evaluated its allowance for
doubtful accounts, which it provides for through its provision for losses on
accounts receivable and believes the allowance to be adequate to absorb probable
losses on the accounts receivable at March 31, 1997.  However, the actual losses
on accounts receivable could differ from management's evaluation at March 31,
1997.

Depreciation and amortization expense was $1,902,942 representing 3.2% of
revenues, $1,246,826 representing 2.8%, of revenues, and $396,661 representing
1.4% of revenues for the years ended March 31, 1997, 1996, and 1995,
respectively.  The increase  both in dollars and as a percent of revenues is
primarily associated with the amortization of the customer bases and goodwill
acquired through the Company's mergers and acquisition activities.

During the year ended March 31, 1997, the Company incurred non-cash charges,
provision to reduce carrying value of certain assets, of approximately $6.3
million related to a writedown in the carrying value of certain assets,
including goodwill and customer base acquisition costs associated with certain
acquisitions.  The Company determined during the settlement process called for
in the certain acquisition agreements that attrition rates for certain customer
bases and businesses acquired were significantly greater than originally
anticipated.  Consequently, the Company determined that future cash flows would
be less than that required to realize these assets.  The Company reassessed the
fair value of these assets by estimating the present value of the future cash
flows through updating with historical results the cash flow models utilized to
initially allocate the intangibles acquired.

Due to the impairment of various intangibles, the Company analyzed the lives of
its intangibles in accordance with SFAS 121.  Consequently, the Company has
established new periods for amortizing certain customer base intangible assets
that it believes to be reasonable estimates of the remaining lives of these
customer base intangibles assets.  The revised remaining useful lives assigned
by the Company, range from 4 to 6 years for acquired customer bases.

    OTHER INCOME AND EXPENSES

Operating income (loss) was ($8,033,833) representing (13.5%) of revenue for the
year ended March 31, 1997.  Operating income was $755,720 representing 1.7% of
revenues for the year ended March 31, 1996.  For the year ended March 31, 1995,
operating income was $1,099,130 representing 3.7% of revenues.

Net interest expense for the year ended March 31, 1997 was $517,596 as compared
to net interest expense for the year ended March 31, 1996 of $198,897, an
increase of 160.2%.  In May 1996, the Company entered into a $14,250,000
credit facility (1997 Facility) with a bank which includes a revolving credit
facility and term loan facility.  The proceeds of the term loan of approximately
$3,250,000 was used to finance the May 1996 acquisition of Universal Network
Services, Inc.  The revolving credit facility was used for general operating
purposes.  Net interest income for the year ended March 31, 1995 was $65,480. 
In December 1995, the Company renewed its line of credit (1996 Facility) with a
bank with proceeds used for general operating purposes.  Net interest income
during fiscal year 1995 resulted primarily from the investment of the proceeds
from the Company's secondary public offering.

    INCOME TAXES

The Company reported a net loss in fiscal 1997, and accordingly, recorded an
income tax benefit of approximately $697,000 or 8.2% of the pre-tax loss.  A
significant portion of the pre-tax loss was related to a writedown in the
carrying value of certain assets including goodwill and customer base
acquisition costs.  These assets must continue to be amortized for tax purposes


                                     -15-

<PAGE>

and the Company believes that only a portion of this writedown should be
utilized for income tax purposes under a "more likely than not" criteria. 
Accordingly, the Company established a valuation allowance of $1,227,000 related
to the associated deferred tax assets of approximately $3,300,000.  For the year
ended March 31, 1996, $223,273 was provided for income taxes resulting in net
income of $374,497.  For the year ended March 31, 1995, $266,954, or 23.5% of
pre-tax income, was attributed to income tax resulting in net income of
$867,514.

    LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations for 1997 was $3,121,310, an increase from net
cash used by operations of $162,903 in 1996, and net cash provided by operations
of $1,054,082 in 1995.  The increase in cash flow from operations was primarily
attributable to the increased gross margin and the timing of collection of
accounts receivable and payment of accounts payable.

Cash flows used in operations resulted in a negative impact on cash during 1996
due primarily to the impact of growth in accounts receivable and other current
assets that were not offset by similar increases in accounts payable and other
current liabilities.

The Company's accounts receivable are anticipated to continue to grow due to
higher sales volume and acquisitions.  Growth will require cash disbursements
for acquisitions, installation costs on lines and equipment to expand networking
capability.  In addition, the growth will require cash payments to vendors prior
to receipt of payments by its customers.

The Company's growth will also require continued expansion of the
telecommunications equipment and related capital items.  The Company used net
cash of $3,316,998, $807,377 and $568,837 for investing activities for the years
1997, 1996, and 1995, respectively.  The primary use of cash in 1997, 1996, and
1995 was for the acquisition of customer bases resulting in acquisition costs of
$3,801,004, $1,101,173 and $1,781,055 respectively.  

Cash used in financing activities in 1997 was $578,336 as compared to cash
provided by financing activities of $1,339,585 in 1996, and cash used in
financing activities of $370,694 in 1995. In 1997 the Company made principal
payments on debt of $3,743,031 and received cash of $3,250,000 from the
issuance of debt.  In 1996, the Company borrowed $2,532,235 under its line of
credit and made principal payments on its debt of $1,243,018.  In 1995 the
Company redeemed all of its outstanding preferred stock for $55,527, made
payments against costs of the secondary public offering of $53,585, reduced debt
principal by $454,680, and received $204,695 from the issuance of common stock. 

The Company experienced a net cash decrease of $237,436 in 1997, a net cash
increase of $369,305 in 1996, and $114,551 in 1995.  Stockholders' equity was
$8,112,169 and  $13,986,066  as of March 31, 1997, and 1996, respectively.

In May 1996, the Company entered into a $14,250,000 credit facility with a bank
(the 1997 Facility) which includes a revolving credit facility and term loan
facility.  Borrowings under the revolving credit portion of the 1997 Facility
may not exceed the lessor of $11,000,000 minus any reserves the lender may deem
eligible or 85% of eligible receivables.  Borrowings under the revolver will
bear interest at the prime rate plus 0.75%.  Borrowings and unpaid interest on
the revolving facility are repayable in full at maturity of the facility on June
1, 1999.  The Company is allowed to borrow $3,250,000 under the term loan
facility.  The term loan is repayable in 36 equal monthly installments of
$90,278 plus accrued interest.  The term loan bears interest at the prime rate
plus 3%.  Substantially all of the assets of the Company are pledged as
collateral under the credit facility.  At March 31, 1997, $40,000 and
$2,437,000, were outstanding under the revolving and the term loan,
respectively.

Substantially all of the assets of the Company including tangible assets,
receivables and general intangibles, the definition of which includes but is not
limited to intellectual property, business plans, business records and licenses,
are pledged as collateral under the 1997 Facility.  The 1997 Facility requires
compliance with certain financial and operating covenants which include minimum
leverage and fixed charge coverage ratios.  As of March 31, 1997, the Company
was not in compliance with certain financial covenants enumerated in the 1997
Facility.  Accordingly, the Company received a waiver with respect to certain of
such covenants from its lender as of March 31, 1997.  As a  result of and in
connection with the merger transactions consummated in May 1997, the Company
complied with certain of the financial covenants, and has currently negotiated
certain amendments to the credit facility to reflect changes in financial
position and anticipated changes in business strategies and operating results
associated with such transactions.  While management, believes that the Company
will be able to comply with the renegotiated loan agreement, there can be no
assurance that the Company will not require additional waivers in the future or,
if such waivers are required, that the lender will grant them.

Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and funds available under existing
credit facilities will be adequate to meet the Company's capital needs for the
remainder of fiscal 1998.

    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


                                     -16-

<PAGE>

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share".
This statement established accounting standards for computing and presenting
earnings per share and applies to entities with publicly held common stock. 
This statement is effective for periods ending after December 15, 1997,
including interim periods.

Early application of SFAS No. 128 is not permitted, however, upon adoption, all
prior periods must be restated.  Based on the standards to be adopted, basic
earnings (loss) per share would be ($1.30), $0.08, and $0.19 for the years ended
March 31, 1997, 1996, and 1995, respectively, and diluted earnings per share
would be ($1.30), $0.07, and $0.19, respectively.

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure".  This statement establishes standards for disclosing
information about an entity's capital structure.  This statement is effective
for financial statements for periods ending after December 15, 1997, and will
not materially change the disclosures currently included in the Company's
financial statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please see pages F-1 through F-8.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated by reference to the Company's definitive proxy statement for 1997
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after March 31, 1997.

ITEM 11.  EXECUTIVE COMPENSATION.

Incorporated by reference to the Company's definitive proxy statement for 1997
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after March 31, 1997.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated by reference to the Company's definitive proxy statement for 1997
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after March 31, 1997.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference to the Company's definitive proxy statement for 1997
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days after March 31, 1997.


                                     -17-

<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                      NETWORK LONG DISTANCE, INC.



Dated:  June 27, 1997                 By  /s/ THOMAS G. KEEFE
                                        ----------------------------------------
                                        Thomas G. Keefe, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.

          SIGNATURE                     CAPACITY                        DATE
          ---------                     --------                        ----


 /s/ JOHN D. CRAWFORD              Chairman, Chief                 June 27, 1997
-------------------------------    Executive Officer,
John D. Crawford                   and Director

 /s/ TIMOTHY A. BARTON             President                       June 27, 1997
-------------------------------    and Director
Timothy A. Barton

 /s/ JOHN V. LEAF                  Secretary                       June 27, 1997
-------------------------------    and Director
John V. Leaf

 /s/ THOMAS G. KEEFE               Principal Financial Officer,    June 27,1997
-------------------------------    Principal Accounting Officer,
Thomas G. Keefe                    and Director

 /s/ LEON L. NOWALSKY              Director                        June 27, 1997
-------------------------------
Leon L. Nowalsky

 /s/ RUSSELL J. PAGE               Director                        June 27, 1997
-------------------------------
Russell J. Page

 /s/ TIMOTHY J. SLEDZ              Director                        June 27, 1997
-------------------------------
Timothy J. Sledz

 /s/ ALBERT A. WOODWARD            Director                        June 27, 1997
-------------------------------
Albert A. Woodward


<PAGE>

                                   PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.

(a)  1.  The following Financial Statements are filed as part of this Report:

                                                                 Page
                                                                 ----

     Index to Financial Statements                             

     Independent Auditors' Report                             F-1 - F-3

     Financial Statements                                      

         Consolidated Balance Sheets                                F-4

         Consolidated Statements of Operations                      F-5
                                                                    
         Consolidated Statements of Stockholders' Equity            F-6

         Consolidated Statements of Cash Flows                      F-7
                                                                    
         Notes to Consolidated Financial Statements                 F-8

(a)  2.  None.

(a)  3.  Exhibits:

         27.1  Financial Data Schedule (Filed herewith)

(b)  1.  The Company filed Form 8-K/A dated November 15, 1996 on January 14, 
         1997 which included the Supplemental Consolidated Balance Sheets 
         of the Company and its subsidiaries as of March 31, 1996 and 1995 
         and the related Supplemental Consolidated Statements of 
         Operations, Stockholders' Equity and Cash Flows associated with 
         its merger with United Wats, Inc.




                                     -18-

<PAGE>

                                       
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                       
                                       
To the Stockholders of
   Network Long Distance, Inc.:

We have audited the accompanying consolidated balance sheets of Network Long 
Distance, Inc. (a Delaware Corporation) and subsidiaries as of March 31, 1997 
and 1996, and the related consolidated statements of operations, 
stockholders' equity and cash flows for each of the years in the three year 
period ended March 31, 1997.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audits.  We did not 
audit the financial statements of Long Distance Telecom, Inc. included in the 
consolidated financial statements of Network Long Distance, Inc. which 
statements constitute total assets of 4.6% as of March 31, 1996 and total 
revenues of 7.7% for the year ended March 31, 1996, and total revenues of 
9.5% for the year ended March 31, 1995 of the related consolidated totals.  
We also did not audit the financial statements of United Wats, Inc., included 
in the consolidated financial statements of Network Long Distance, Inc. which 
statements constitute total assets of 10.3% as of March 31, 1996 and total 
revenues of 23.9% for the year ended March 31, 1996 and total revenues of 
8.0% for the year ended March 31, 1995 of the related consolidated totals.  
The financial statements of Long Distance Telecom, Inc. and United Wats, Inc. 
were audited by other auditors whose reports thereon have been furnished to 
us, and our opinion, insofar as it relates to the amounts included for Long 
Distance Telecom, Inc. and United Wats, Inc., is based solely upon the 
reports of other auditors.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits and the reports 
of other auditors provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the reports of other auditors, the 
consolidated financial statements referred to above present fairly, in all 
material respects, the financial position of Network Long Distance, Inc. and 
subsidiaries as of March 31, 1997 and 1996, and the results of their 
operations and their cash flows for each of the years in the three year 
period ended March 31, 1997, in conformity with generally accepted accounting 
principles.

Jackson, Mississippi,
    June 26, 1997.

                                     F-1
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT


To the General Partner
Telecommunications Ventures Limited Partnership No. 1
T/A Blue Ridge Telephone
Culpeper, VA 22701


     We have audited the balance sheet of Telecommunications Ventures Limited 
Partnership No. 1, T/A Blue Ridge Telephone, as of December 31, 1995 and the 
related statements of operations, partners' equity (deficit) and cash flows 
for the years ended December 31, 1995 and 1994. These financial statements 
are the responsibility of the Partnership's management. Our responsibility is 
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Telecommunications Ventures 
Limited Partnership No. 1, T/A Blue Ridge Telephone as of December 31, 1995 
and the results of its operations and its cash flows for the years ended 
December 31, 1995 and 1994 in conformity with generally accepted accounting 
principles.

                                       Yount, Hyde & Barbour, P.C.

Culpeper, Virginia
May 10, 1996

                                     F-2
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT

To the Board of Directors

UNITED WATS, INC.

We have audited the balance sheet of United Wats, Inc. as of December 31, 
1995, and the related statements of income, changes in stockholders' equity 
and cash flows for the years ended December 31, 1995 and 1994. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of United Wats, Inc. as of 
December 31, 1995, and the results of its operations and its cash flows for 
the years ended December 31, 1995 and 1994 in conformity with generally 
accepted accounting principles.

                                       Mayer Hoffman McCann L.C.

Kansas City, Missouri
March 11, 1996

                                     F-3
<PAGE>

                     NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS

                                                             MARCH 31,
                                                     --------------------------
                                                         1997          1996
                                                     ------------  ------------

                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                          $    655,136  $    892,572
  Accounts receivable, net of allowance for doubtful 
   accounts of $2,355,000 and $1,073,000 at March 31, 
   1997 and 1996, respectively                          8,641,560     9,325,997
  Other receivables                                       360,965       708,962
  Deferred income tax asset                               148,600          -
  Other current assets                                    672,254       668,231
                                                     ------------  ------------
        Total current assets                           10,478,515    11,595,762

PROPERTY AND EQUIPMENT:
  Land                                                     75,000        75,000
  Building and improvements                               465,575       697,285
  Telecommunications equipment                          1,583,949     2,338,866
  Furniture and fixtures                                1,581,979     1,371,197
                                                     ------------  ------------
                                                        3,706,503     4,482,348
  Less: accumulated depreciation                       (2,081,992)   (1,758,936)
                                                     ------------  ------------
                                                        1,624,511     2,723,412
                                                     ------------  ------------
CUSTOMER BASE ACQUISITION COSTS, NET                    5,645,730     5,073,145
GOODWILL, NET                                             450,020     3,287,637
OTHER INTANGIBLES, NET                                    264,221       412,220
OTHER ASSETS                                              490,715       218,940
                                                     ------------  ------------
        Total assets                                 $ 18,953,712  $ 23,311,116
                                                     ------------  ------------
                                                     ------------  ------------

       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                   $    390,315  $  1,657,423
  Accrued telecommunications cost                       5,850,844     2,736,999
  Other accrued liabilities                             1,808,959     1,152,591
  Customer deposits                                       128,960       176,210
  Deferred income tax liability                              -          242,872
  Current maturities of long-term debt and capital
   lease obligation                                     1,208,209       285,135
                                                     ------------  ------------
        Total current liabilities                       9,387,287     6,251,230

DEFERRED INCOME TAX LIABILITY                                -           58,201

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS            1,454,256     3,015,619

COMMITMENTS AND CONTINGENCIES

Series A convertible preferred stock - $.01 par value;
  25,000,000 shares authorized; no shares issued and 
  outstanding at March 31, 1997 and 1996 (redemption 
   value $3 per share)                                       -             -

STOCKHOLDERS' EQUITY
  Common stock - $.0001 par value; 20,000,000 shares 
   authorized; 6,718,908 and 6,523,902 shares issued
   and outstanding at March 31, 1997 and 1996,
   respectively                                               672           652
  Additional paid-in capital                           14,828,040    12,970,833
  Retained earnings (deficit)                          (6,624,253)    1,106,871
  Treasury Stock                                          (92,290)      (92,290)
                                                     ------------  ------------
        Total stockholders' equity                      8,112,169    13,986,066
                                                     ------------  ------------
        Total liabilities and stockholders' equity   $ 18,953,712  $ 23,311,116
                                                     ------------  ------------
                                                     ------------  ------------

   The accompanying notes are an integral part of these financial statements.

                                     F-4
<PAGE>

               NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
                                       
                   CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
                                                                            FOR THE YEAR ENDED MARCH 31,
                                                                   ----------------------------------------------
                                                                        1997             1996            1995
                                                                   -------------    -------------   -------------
<S>                                                                <C>              <C>             <C>
Revenues (including excise taxes of $2,863,000, $1,230,000, 
  and $219,000 in 1997, 1996 and 1995, respectively)               $  59,690,135    $  45,083,191   $  29,374,853
                                                                   -------------    -------------   -------------

Operating expenses:
  Transmission costs                                                  40,717,419       32,548,221      21,823,645
  Selling, general and administrative                                 15,770,990        9,420,273       5,652,103
  Provision for losses on accounts receivable                          3,041,617        1,112,151         403,314
  Depreciation and amortization                                        1,902,942        1,246,826         396,661
  Provision to reduce carrying value of certain assets                 6,291,000             -                -     
                                                                   -------------    -------------   -------------

    Total operating expenses                                          67,723,968       44,327,471      28,275,723
                                                                   -------------    -------------   -------------

Operating income (loss)                                               (8,033,833)         755,720       1,099,130
Interest (income) expense, net                                           517,596          198,897         (65,480)
Other (income) expense                                                      -             (40,947)         30,142
                                                                   -------------    -------------   -------------

Income (loss) before income taxes                                     (8,551,429)         597,770       1,134,468
Provision (benefit) for income taxes                                    (697,000)         223,273         266,954
                                                                   -------------    -------------   -------------

Net income  (loss)                                                    (7,854,429)         374,497         867,514

Unaudited pro forma adjustment (Note 1):
  Income tax provision                                                     4,700          126,375          28,685
                                                                   -------------    -------------   -------------

Unaudited pro forma net income (loss) applicable to common
  stockholders                                                     $  (7,859,129)   $     248,122   $     838,829
                                                                   -------------    -------------   -------------
                                                                   -------------    -------------   -------------


Earnings (loss) per common share                                   $       (1.30)   $       0.07    $       0.19
                                                                   -------------    -------------   -------------
                                                                   -------------    -------------   -------------

Unaudited pro forma earnings (loss) per common share               $       (1.30)   $       0.05    $       0.18
                                                                   -------------    -------------   -------------
                                                                   -------------    -------------   -------------
</TABLE>


  The accompanying notes are an integral part of these financial statements.



                                      F-5

<PAGE>

                NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
                                                       COMMON STOCK
                                                     $.0001 PAR VALUE       ADDITIONAL                   TREASURY STOCK
                                                    ------------------       PAID-IN      RETAINED     -------------------
                                                    NUMBER      AMOUNT       CAPITAL      EARNINGS     NUMBER       AMOUNT
                                                    ------      ------       -------      --------     ------       ------
<S>                                                <C>         <C>        <C>            <C>          <C>           <C>
BALANCE, MARCH 31, 1994                            5,418,179   $    542   $  6,139,916   $  135,113   1,028,917     $(239,559)

Issuance of common stock to former holders of
  Series A Convertible Preferred Stock               63,502           6        190,500         -           -             -

Issuance of common stock for acquisitions            29,038           3        232,126         -           -             -

Issuance of common stock (net of direct costs
  of $53,585)                                       728,773          73        151,038         -           -             -

Retirement of treasury stock                       (632,527)        (63)       (18,339)    (128,867)   (632,527)      147,269

Dividends on common stock, $0.02 per share             -           -              -        (105,000)       -             -

Net income                                             -           -              -         867,514        -             -
                                                 -----------   ---------   -----------   -----------   ----------   ----------
BALANCE, MARCH 31, 1995                           5,606,965         561      6,695,241      768,760     396,390       (92,290)

Issuance of common stock for acquisitions           916,937          91      6,275,592         -           -             -

Dividends on common stock, $0.006 per share            -           -              -         (36,386)       -             -

Net income                                             -           -              -         374,497        -             -
                                                 -----------   ---------   -----------   -----------   ----------   ----------
BALANCE, MARCH 31, 1996                          6,523,902          652     12,970,833     1,106,871    396,390       (92,290)

Issuance of common stock for acquisition           195,006           20      1,857,207          -          -             -

Net loss                                              -            -              -       (7,854,429)      -             -

Effect of change in fiscal year end of
  merged entities                                     -            -              -          123,305       -             -
                                                 -----------   ---------   -----------   -----------   ----------   ----------
BALANCE, MARCH 31, 1997                          6,718,908     $    672    $14,828,040   $(6,624,253)   396,390     $ (92,290)
                                                 -----------   ---------   -----------   -----------   ----------   ----------
                                                 -----------   ---------   -----------   -----------   ----------   ----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                        F-6


<PAGE>

                NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
                                                                       FOR THE YEAR ENDED MARCH 31,
                                                                ------------------------------------------
                                                                    1997            1996           1995
                                                                -----------     -----------    -----------
<S>                                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                             $(7,854,429)    $   374,497    $   867,514
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
    Depreciation                                                    630,338         623,845        316,391
    Amortization                                                  1,272,604         622,981         80,270
    Provision for losses on accounts receivable                   3,041,617       1,112,151        403,314
    Provision to reduce carrying value of certain assets          6,291,000             -              -
    Provision (benefit) for deferred income taxes                  (724,275)        207,907         71,434
    Provision for employee stock incentive plan                      30,835          50,752         42,350
    (Gain) loss on disposal of equipment                                -           (17,000)        62,319
    Changes in assets and liabilities, net of effect of
     business combinations:
      Accounts receivable                                        (1,516,201)     (3,997,138)    (2,888,943)
      Other receivables and current assets                          347,997      (1,206,250)        34,408
      Accounts payable and other current liabilities              1,664,274       1,943,120      2,223,200
      Other                                                         (62,450)        122,232       (158,175)
                                                                -----------     -----------    -----------
  Net cash provided by (used in) operating activities             3,121,310        (162,903)     1,054,082
                                                                -----------     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                             (304,798)     (1,081,983)    (1,423,988)
  Sale of short-term investments                                        -         1,558,562      2,751,238
  Acquisitions and related costs                                 (3,801,004)     (1,101,173)    (1,781,055)
  Decrease (increase) in other intangible assets                     24,441        (195,321)      (110,853)
  Proceeds from sale of equipment                                   764,363          17,000            -
  Other                                                                 -            (4,462)        (4,179)
                                                                -----------     -----------    -----------
    Net cash used in investing activities                        (3,316,998)       (807,377)      (568,837)
                                                                -----------     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net borrowings (repayments) under line of credit               (2,492,731)      2,532,235            -
  Principal payments on debt                                     (1,250,300)     (1,243,018)      (454,680)
  Proceeds from issuance of debt                                  3,250,000          86,754        123,000
  Decrease in capital lease obligation                              (85,305)            -              -
  Proceeds from issuance of common stock                                -               -          204,695
  Redemption of preferred stock                                         -               -          (55,527)
  Dividends on common stock                                             -           (36,386)      (134,597)
  Offering costs                                                        -               -          (53,585)
                                                                -----------     -----------    -----------
    Net cash provided by (used in) financing activities            (578,336)      1,339,585       (370,694)
                                                                -----------     -----------    -----------
    Effect of change in fiscal year end of merged entities          536,588             -              -
                                                                -----------     -----------    -----------
    Net increase (decrease) in cash and cash equivalents           (237,436)        369,305        114,551
    Cash and cash equivalents at beginning of period                892,572         523,267        408,716
                                                                -----------     -----------    -----------
    Cash and cash equivalents at end of period                  $   655,136     $   892,572    $   523,267
                                                                -----------     -----------    -----------
                                                                -----------     -----------    -----------
</TABLE>

      The accompanying notes are an integral part of these financial statements.

                                     F-7
<PAGE>

                  NETWORK LONG DISTANCE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS, MERGERS, ACQUISITIONS AND RELATED MATTERS:

DESCRIPTION OF BUSINESS

Network Long Distance, Inc. (the "Company" or "Network") provides long 
distance telecommunications services to commercial and residential customers 
throughout most of the United States with a primary concentration on small to 
medium-sized businesses.  The Company provides these services primarily 
through three customer service channels - business retail, agents and 
association programs. The business retail channel involves the sale of long 
distance services directly to end-users.  The agents channel involves the 
sale of long distance services directly to end-users through master agents of 
the Company.  The association program channel establishes exclusive marketing 
agreements with various trade or business associations to market the 
Company's products and services to members of the associations.  Previously, 
the Company operated a switchless reseller channel which involved the sale of 
long distance services to other entities who resell the services to end 
users.  The Company began to de-emphasize its switchless reseller channel 
during the year ended March 31, 1996.  See Note 2.

Calls are transmitted over circuits leased from other telecommunications 
carriers at fixed or variable rates.  Calls are switched through the 
Company's switching center or by other carriers on the Company's behalf.  The 
Company furnishes its end user customers, as well as its reseller customers, 
with various long distance products including 1+ dialing, WATS, private line, 
calling cards and 800 services.  Billing, collection and customer service are 
available, at additional costs to reseller customers.

The Company has four wholly-owned subsidiaries, Network Advanced Services, 
Inc., Network Acquisition Corp., United Wats, Inc. and Long Distance Telecom, 
Inc. All references to the Company include its subsidiaries except as stated 
otherwise.  The Company's principal offices are located in Baton Rouge, 
Louisiana.

MERGERS

On June 30, 1996, Network merged with Long Distance Telecom, Inc. dba Blue 
Ridge Telephone ("Blue Ridge") and in connection therewith issued 337,079 
shares of common stock for all of Blue Ridge's common stock.  On November 15, 
1996, Network merged with United Wats, Inc. ("United Wats") and in connection 
therewith issued 2,277,780 shares of common stock for all of United Wats' 
common stock.  (Both transactions are collectively referred to as the 
"Mergers.") Each of the Mergers was accounted for as a pooling-of-interests 
and, accordingly, the Network financial statements for periods prior to the 
Mergers have been restated to include the results of Blue Ridge and United 
Wats for all periods presented. The combined companies of Network, Blue Ridge 
and United Wats are hereinafter referred to as the Company.  Separate and 
combined results of operations are as follows:  (Note that for the six months 
ended September 30, 1996, balances for Blue Ridge have been included in the 
balances for Network.):

                                      F-8
<PAGE>
<TABLE>
                         THREE            SIX MONTHS                   YEAR ENDED
                     MONTHS ENDED           ENDED                      MARCH 31,
                     -------------     ------------------     ----------------------------
                     JUNE 30, 1996     SEPTEMBER 30, 1996          1996           1995
                     -------------     ------------------     ------------    ------------
<S>                  <C>               <C>                    <C>             <C>
Revenues:      
  Network            $  8,975,000        $ 20,197,000         $ 30,810,000    $ 24,217,000
  Blue Ridge              994,000                -               3,463,000       2,790,000
  United Wats           4,446,000           9,448,000           10,810,000       2,368,000
                     ------------        ------------         ------------    ------------
    Combined         $ 14,415,000        $ 29,645,000         $ 45,083,000    $ 29,375,000
                     ------------        ------------         ------------    ------------
                     ------------        ------------         ------------    ------------

Income (loss) before
 income tax:
  Network            $    (32,000)       $    (66,000)        $   (442,000)   $    609,000
  Blue Ridge               45,000                -                 313,000          62,000
  United Wats              83,000             414,000              727,000         463,000
                     ------------        ------------         ------------    ------------
    Combined         $     96,000        $    348,000         $    598,000    $  1,134,000
                     ------------        ------------         ------------    ------------
                     ------------        ------------         ------------    ------------
</TABLE>

Prior to the Mergers, Blue Ridge operated in the form of a partnership under 
the name "Telecommunications Ventures Limited Partnership No. 1 T/A Blue 
Ridge Telephone."  On June 17, 1996, Blue Ridge changed to a corporate form 
of organization.  Blue Ridge did not recognize income tax expense for the 
periods presented because its tax attributes flowed to its partners.  The 
consolidated statements of operations include an unaudited pro forma 
adjustment to reflect results as if Blue Ridge had been subject to income tax 
for all periods presented.

Prior to the Mergers, both Blue Ridge and United Wats utilized a December 31 
fiscal year end.  For purposes of the combined results of operations for the 
year ended March 31, 1997, the amounts include Network, Blue Ridge and United 
Wats historical results of operations for the twelve months ended March 31, 
1997.  For purposes of the combined results of operations for the years ended 
March 31, 1996 and 1995, the Blue Ridge and United Wats amounts reflect Blue 
Ridge and United Wats historical results of operations for the years ended 
December 31, 1995 and 1994, respectively, and the Network amounts reflect 
Network's historical results for the years ended March 31, 1996 and 1995, 
respectively.  Therefore, the Blue Ridge and United Wats historical results 
of operations for the three months ended March 31, 1996 are not contained in 
the Company's consolidated statements of operations and cash flows for any 
period presented.  There were no significant intercompany transactions among 
Network, Blue Ridge and United Wats.  

                                      F-9
<PAGE>

The following are condensed statements of operations and cash flows for Blue 
Ridge and United Wats for the three months ended March 31, 1996:

                      Condensed Statements of Operations
                       THREE MONTHS ENDED MARCH 31, 1996
                      -----------------------------------

                                          BLUE RIDGE     UNITED WATS
                                          ----------     ------------
      Revenue                             $  926,000     $  3,855,000
      Operating expenses                     852,000        3,636,000
                                          ----------     ------------
      Operating income                        74,000          219,000
      Other income (expenses)                 (4,000)            -   
                                          ----------     ------------
      Income before tax                       70,000          219,000
      Provision for income tax                  -              79,000
                                          ----------     ------------
      Net income                          $   70,000     $    140,000
                                          ----------     ------------
                                          ----------     ------------


                       Condensed Statements of Cash Flows
                       THREE MONTHS ENDED MARCH 31, 1996
                      -----------------------------------

                                              BLUE RIDGE     UNITED WATS
                                              ----------     ------------
      Net Income                               $  70,000     $  140,000
      Depreciation                                31,000          8,000
      Change in current assets and liabilities    (2,000)       475,000
                                               ---------     ----------
      Cash provided by operating activities       99,000        623,000
                                               ---------     ----------
      Cash provided by (used in) investing
          activities                              10,000        (37,000)
                                               ---------     ----------
      Cash used in financing activities         (138,000)       (20,000)
                                               ---------     ----------
      Increase (decrease) in cash and cash
          equivalents                          $ (29,000)    $  566,000
                                               ---------     ----------
                                               ---------     ----------

MERGER AND ACQUISITION ACTIVITY AND RELATED MATTERS

The Company has been actively engaged in an acquisition program, focusing on 
companies primarily in the long distance industry.  See Note 3.  Certain of 
the acquisitions have resulted in the Company's acquiring significant 
intangible assets, primarily customer base acquisition costs and goodwill.  
As explained in Note 3, during the year ended March 31, 1997, primarily 
pursuant to certain contractual reevaluation criteria, management determined 
that the Company's ability to realize the unamortized balance of intangible 
assets related to certain prior acquisitions was uncertain.  As a result, the 
Company incurred $6,291,000 in non-cash provisions to reduce the carrying 
value of such intangibles to their estimated fair value.  As of March 31, 
1997, the Company has approximately $6,100,000 of remaining unamortized 
intangible assets related to acquisition transactions.  Management believes 
that its investment in such intangible assets is realizable based on the 
estimated future net cash flows expected to be generated from the acquired 
entities or customer bases.  However, management's estimates of future net 
cash flows may change in the future and such changes could be material.

The Company incurred a net loss of $7,854,000 for the year ended March 31, 
1997. Factors that contributed significantly to the loss were the provision 
to reduce the carrying value of intangible assets, an increased provision for 
losses on accounts receivable and increased selling, general and 

                                       F-10
<PAGE>

administrative expenses. As a result of the loss, stockholders' equity 
declined from $13,986,000 at March 31, 1996 to $8,112,000 at March 31, 1997.  
Because of the operating loss and resulting decline in stockholders' equity 
reported by the Company for the year ended March 31, 1997, the Company was 
not in compliance with certain financial covenants contained in its bank 
credit facility (See Note 5).  Accordingly, the Company received a waiver 
with respect to certain of such covenants from its lender as of March 31, 
1997.  As a result of and in connection with the merger transactions 
consummated in May 1997 (See Note 13), the Company complied with certain of 
the financial covenants, and has negotiated certain amendments to the credit 
facility to reflect changes in financial position and anticipated changes in 
business strategies and operating results associated with such transactions. 
While management, believes that the Company will be able to comply with the 
renegotiated loan agreement, there can be no assurance that the Company will 
not require additional waivers in the future or, if such waivers are 
required, that the lender will grant them.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of 
the Company and its wholly-owned subsidiaries.  All significant intercompany 
balances have been eliminated in consolidation.

USE OF ESTIMATES

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, the disclosure of 
contingent assets and liabilities at the date of the financial statements and 
revenues and expenses during the periods reported.  Actual results could 
differ from those estimates.  Estimates are used primarily when accounting 
for allowance for doubtful accounts, depreciation and amortization, and 
taxes.  In addition, estimates are used by management in estimating future 
net cash flows when evaluating the Company's ability to realize its 
investments in long-lived assets, and in determining estimated fair value of 
assets which are deemed to have been impaired.  See "Accounts Receivable" and 
"Intangible Assets," and Note 3.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash, accounts receivable, other receivables, 
accounts payable, accrued liabilities and long-term debt approximate their 
fair value.

ACCOUNTS RECEIVABLE

Accounts receivable represent amounts due on monthly billings for long 
distance and other telecommunications costs incurred by customers.

The allowance for doubtful accounts is established through a provision for 
losses on accounts receivable which is charged to expense.  Accounts 
receivable are written off against the allowance for doubtful accounts when 
management believes the collectibility of the receivable is unlikely.  The 
allowance, which is based on evaluations of the collectibility of the 
receivables and prior bad debt experience, is an amount that management 
believes will be adequate to absorb probable losses on accounts receivable 
existing at the reporting date. The evaluations take into 

                                       F-11
<PAGE>

consideration such factors as changes in the aging and volume of the accounts 
receivable, overall quality, review of specific problem receivables and 
current industry conditions that may affect a customer's ability to pay.  
Actual results could differ from management's estimates.  Write-offs during 
the fiscal years 1997, 1996 and 1995 were approximately $2,010,000, $780,000, 
and, $179,000, respectively.

During the year ended March 31, 1996, the Company began reevaluating its 
switchless reseller channel activities, generally and, specifically its 
relationship with certain resellers.  As a result, the Company chose to 
de-emphasize its reseller marketing activities by reducing the number of 
reseller customers and the related wholesale accounts receivable.  In 
addition, certain reseller customers experienced financial difficulties which 
impeded their ability to pay the Company on a timely basis.  Reseller 
customers with slow payment histories have been placed on specific payment 
plans or under lock box agreements.

During the year ended March 31, 1997, the Company determined that losses on 
certain accounts receivable acquired through acquisition transactions were 
greater than expected at the time of acquisition.  As a result, the Company 
has written-off or made provision for such accounts receivable to reduce the 
carrying amount to the estimated realizable value.

Management has specifically evaluated its allowance for doubtful accounts and 
believes the allowance to be adequate to absorb probable losses on the 
accounts receivable at March 31, 1997.  However the actual losses on accounts 
receivable could differ from management's evaluation at March 31, 1997 and 
such difference could be material.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost.  Depreciation is provided for 
financial reporting purposes using primarily the straight-line method over 
the following estimated useful lives:

               Building                          30 years
               Building improvements              7 years
               Telecommunications equipment    3-10 years
               Office equipment                 5-7 years

Maintenance and repairs are expensed as incurred.  Replacements and 
betterments are capitalized.  The cost and related reserves of assets sold or 
retired are removed from the property accounts, and any resulting gain or 
loss is reflected in results of operations.

INTANGIBLE ASSETS

The Company's intangible assets include customer base acquisition costs and 
non-compete agreements incurred as a result of purchased customer bases; 
goodwill, customer base acquisition costs and non-compete agreements 
resulting from acquisitions of businesses; and software development costs 
attributable to telecommunications service activities.

In allocating the excess of the purchase price over tangible assets acquired 
in business combinations, the Company utilizes cash flow models and projected 
attrition rates to quantify the values allocated to the various intangibles 
as well as the related useful lives.  While management believes that the cash 
flow models are achievable and the attrition rates are reasonable, management 
regularly reassesses the realization of the acquisition-related intangibles 
through periodic updates of the cash flow models.  Additionally, certain 
acquisition agreements call for a comparison, at a specified date, of actual 
customer attrition rates experienced to those expected at 

                                       F-12
<PAGE>

the time of the acquisition agreement (the "True-Up").  If actual attrition 
rates differ from expected rates, certain adjustments to the acquisition 
price may be required. If at the time of the True-Up, actual attrition rates 
are significantly greater than expected by the Company, the Company makes a 
determination, based on estimated future net cash flows, whether the 
intangible asset related to the acquisition has been impaired.  If an 
impairment has occurred, a provision for reduction in the carrying value is 
made to reduce the carrying amount of the intangibles to the estimated fair 
value of the related customer base.  Such provisions are applied first to any 
goodwill attributable to the impaired assets until goodwill is eliminated and 
then to the customer base acquisition costs. See Note 3.

Customer base acquisition costs include the excess of the purchase price over 
any tangible assets acquired as well as specific costs incurred to consummate 
the transaction such as attorney's fees, accountant's fees and due diligence 
costs.  Customer base acquisition costs are recorded based upon the estimated 
value (primarily based on estimated future net cash flows) of the customer 
base acquired and are amortized over 6 to 7 years using the straight-line 
method. Accumulated amortization at March 31, 1997 and 1996, was 
approximately $1,607,000 and $418,000, respectively.

Goodwill is recorded in connection with business combinations to the extent 
the purchase price exceeds the estimated fair value of specifically 
identifiable tangible and intangible assets.  The Company periodically 
evaluates the realizability of goodwill based primarily on expected cash 
flows from the acquired assets or business.  Goodwill is amortized over 30 
years using the straight-line method.  Accumulated amortization at March 31, 
1997 and 1996, was approximately $75,000 and $115,000, respectively.

Other intangibles include software costs of approximately $235,000 and 
$296,000 as of March 31, 1997 and 1996, respectively, and non-compete 
agreements of approximately $231,000 at both March 31, 1997 and 1996.  The 
Company capitalizes external costs related to software development while 
internal costs are expensed.  Software costs are amortized using the 
straight-line method over lives ranging from 4 to 5 years.  Non-compete 
agreements are amortized using the straight-line method over the lives of the 
agreements, currently 5 years. Accumulated amortization of other intangibles 
as of March 31, 1997 and 1996, was approximately $317,000 and $194,000, 
respectively.

See Note 3 for discussion related to the application of Statement of 
Financial Accounting Standards, ("SFAS") No. 121 "Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."

OTHER RECEIVABLES

Other receivables consist of current amounts due from customers and entities 
that are providing or have formerly provided billing and collection services 
for a portion of the Company's customer base.

OTHER CURRENT ASSETS

At March 31, 1997 and 1996, other current assets consisted of costs of direct 
response advertising and other prepaid expenses.  Direct response advertising 
costs are capitalized and amortized over the expected life of the customer.  
The Company has determined that the expected life of a customer obtained 
through direct response advertising is one year.  At March 31, 1997 and 1996, 
approximately $9,000 and $183,000, net of accumulated amortization of 
approximately $368,000 

                                     F-13
<PAGE>

and $194,000, respectively, was included in other current assets related to 
direct response advertising.

OTHER ASSETS

Other assets consist primarily of long-term notes receivable from employees of
approximately $211,000 and $262,000 at March 31, 1997 and 1996, respectively,
deferred tax assets of $179,000 at March 31, 1997 and deferred financing costs
of $100,000, net of accumulated amortization of $83,000 at March 31, 1997.  

INCOME TAXES

Income taxes are provided using an asset and liability approach.  The current
provision for income taxes represents actual or estimated amounts payable or
refundable on tax returns filed or to be filed for each year.  Deferred tax
assets and liabilities are recorded for the estimated future tax effects of (a)
temporary differences between the tax basis of assets and liabilities and
amounts reported in the balance sheets, and (b) operating loss and tax credit
carryforwards.  The overall change in deferred tax assets and liabilities for
the period measures the deferred tax expense for the period.  Effects of changes
in enacted tax laws on deferred tax assets and liabilities are reflected as
adjustments to tax expense in the period of adjustment.  The measurement of
deferred tax assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some or all
of the deferred tax assets will not be realized.

RECOGNITION OF REVENUE

Customer long distance calls are routed through switching centers owned by the
Company or others over long distance telephone lines provided by others.  The
Company records revenues at the time of customer usage primarily on a measured
time basis.

TRANSMISSION COSTS

Transmission costs include all payments to local exchange carriers and
interexchange carriers primarily for access and transport charges.  The Company
primarily utilizes long-term fixed cost contracts with other carriers in order
to carry customer calls.

EARNINGS PER SHARE

For the year ended March 31, 1997, earnings per share were based on the 
weighted average number of shares outstanding during the period.  No common 
stock equivalents were utilized in the calculation as their effect would be 
anti-dilutive.  For the years ended March 31, 1996 and 1995, earnings per 
share were calculated based on the weighted average number of shares 
outstanding during the year plus the dilutive effect of stock options and 
warrants determined using the treasury method.  Average common and common 
equivalent shares utilized were 6,060,164, 5,079,938, and 4,587,620, 
respectively, for the years ended March 31, 1997, 1996, and 1995.  In each 
year, there were no differences in primary and fully diluted earnings per 
share.

COMMON STOCK ESCROW AGREEMENT

As part of its public offering of common stock in March 1994, the Company
transferred 626,688 shares of common stock, owned by two officers, into an
escrow account.  The common stock could have been released from escrow in three
annual increments of 208,896 shares if the 

                                       F-14
<PAGE>

Company either had met earnings per share requirements, on a fully diluted 
basis as defined in the agreement, or had consummated an offering of the 
Company's common stock considering certain conditions defined in the 
agreement.  The stipulated earnings per share ("EPS") amounts were as follows:

                          YEAR ENDED
                           MARCH 31,                 EPS
                          ----------               ------
                             1995                  $0.375
                             1996                    0.60
                             1997                    1.00

As the Company failed to meet EPS requirements, pursuant to the terms of the
agreement, the common stock held in escrow will be forfeited and canceled to the
Company's treasury by July 15, 2000.  The escrowed shares have been excluded
from the weighted average number of shares outstanding for the years ended March
31, 1997, 1996 and 1995.  As discussed in Note 9, one of the officers subject to
the escrow agreement has initiated litigation against the Company seeking the
release of the escrowed shares or other compensation.  If the escrowed shares
are released, future per share earnings (loss) would be reduced.

STATEMENT OF CASH FLOWS

For purposes of the statement of cash flows, cash on hand and on deposit are
considered to be cash and cash equivalents.

RECLASSIFICATIONS

Certain items for 1996 and 1995 have been reclassified to conform with the 1997
presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share."  This statement establishes accounting standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock.  This statement is effective for periods ending
after December 15, 1997, including interim periods.

Early application of SFAS No. 128 is not permitted, however, upon adoption, all
prior periods must be restated.  Based on the standards to be adopted, basic
earnings (loss) per share would be $(1.30), $0.08, and $0.19 for the years ended
March 31, 1997, 1996, and 1995, respectively, and diluted earnings per share
would be $(1.30), $0.07, and $0.19, respectively.

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure."  This statement establishes standards for disclosing
information about an entity's capital structure.  This statement is effective
for financial statements for periods ending after December 15, 1997, and will
not materially change the disclosures currently included in the Company's
financial statements.


3.  MERGERS AND ACQUISITIONS:

The Company has completed several acquisitions of customer bases of other long
distance companies, and business combinations with other long distance
companies.  The following is a discussion of those transactions which have been
material.

                                       F-15
<PAGE>

CUSTOMER BASE ACQUISITIONS

The Company has completed a series of acquisitions of segments of other long
distance providers' customer bases.  Such acquisitions have been accomplished
through the purchase of the customer base and related accounts receivable for
cash, shares of the Company's common stock, issuance of notes payable and
forgiveness of accounts receivable or a combination thereof.  All acquisitions
have been accounted for as purchases.

The table below sets forth information concerning significant customer base
acquisitions by the Company:

<TABLE>
                                                Purchase Price
                                            ----------------------              Assets Acquired
                                             Cash and     Value of    -----------------------------------
                              Acquisition     Notes        Shares      Accounts    Customer      Other
Acquired Entity                  Date        Payable       Issued     Receivable     Base     Intangibles
----------------------        -----------   ----------    --------    ----------   --------   -----------
<S>                               <C>          <C>           <C>         <C>          <C>         <C>
Quantum
 Communications, Inc.
 (Quantum)                      Jan-96      $  814,000    $590,000     $191,000     $827,000     $    -

Network Services, Inc.
 (NSI)                          May-95         758,000      55,000      259,000      368,000          -

Colorado River
 Communications (CRC)           Nov-94       1,742,000     232,000      336,000      692,000      870,000
</TABLE>

BUSINESS COMBINATIONS

In May 1996, the Company purchased substantially all of the customer base of
Universal Network Services, Inc. ("UniNet"), a provider of long distance
telecommunication services, in a transaction accounted for as a purchase.  The
results of operations of the UniNet customer base acquired are included in the
results of operations of the Company from the date of acquisition. 
Consideration for the purchase included 243,758 shares of the Company's common
stock with an assigned value of approximately $1,862,000 and approximately
$3,650,000 cash.  The Company acquired the outstanding accounts receivable
related to the customer base which were valued at approximately $776,000. 
Intangible assets acquired were allocated to customer base acquisition cost at
approximately $2,115,000 and goodwill at approximately $2,772,000.  The Company
originally amortized customer base acquisition cost over 7.5 years and goodwill
over 30 years using the straight-line method based primarily on expected
customer attrition rates, estimated net cash flows, and industry practices.  Of
the 243,758 shares of the Company's common stock issued, 48,752 shares are held
in escrow pending resolution of purchase price contingencies.  The escrowed
shares have not been considered as part of the purchase price.

In October 1995, the Company acquired substantially all of the assets of
ValueTel, Inc., ("ValueTel"), a long distance reseller whose customer base was
located primarily in Illinois, in a transaction accounted for as a purchase. 
Results of operations of ValueTel are included in the Company's results of
operations for the year ended March 31, 1996 from the date of acquisition.  As
consideration for the purchase, the Company issued 890,915 shares of its common
stock with an assigned value of approximately $5,955,000, assumed liabilities of
ValueTel of approximately $696,000 and forgave a ValueTel payable to the Company
of approximately $608,000.  The Company acquired substantially all of ValueTel's
accounts receivable which were valued at approximately $1,610,000.  Intangible
assets acquired were allocated to customer base at approximately $3,334,000 and
goodwill at approximately $2,315,000.  The Company originally amortized customer
base acquisition costs over 7.5 years and goodwill over 30 years using the
straight-line method based primarily on expected customer attrition rates,
estimated net cash 

                                      F-16
<PAGE>

flows, and industry practices.  Of the 890,915 shares of the Company's common 
stock issued, 16,500 shares are held in escrow pending resolution of purchase 
price contingencies.  The escrowed shares have not been considered as part of 
the purchase price.  The purchase agreement with ValueTel calls for a 
re-evaluation of customer attrition rates one year from the acquisition date. 
As of March 31, 1997, such re-evaluation was in progress. However, management 
of the Company believes that, as a result of the re-evaluation, the escrowed 
shares will not be released.

The following unaudited pro forma combined results of operations for the Company
assume that the UniNet and ValueTel acquisitions were completed on April 1,
1995.

                                                     1997           1996
                                                 -----------    -----------
Revenues                                         $61,295,000    $56,285,000
Loss applicable to common shareholders            (7,908,000)    (7,039,000)
Loss per share                                         (1.18)         (1.33)


These pro forma amounts represent the historical operating results of the
acquired entities combined with those of the Company with appropriate
adjustments which give effect to interest expense, amortization and common
shares issued.  These pro forma amounts are not necessarily indicative of
operating results which would have occurred if UniNet and ValueTel had been
operated by current management during the periods presented.

PROVISION TO REDUCE THE CARRYING VALUE OF CERTAIN ASSETS

During the fiscal quarter ended December 31, 1996, as part of the re-evaluation
called for in the ValueTel agreement, the Company determined that the attrition
rates for the customer base acquired were greater than originally anticipated. 
As a result, management determined that it was appropriate to re-evaluate
attrition rates of all customer bases acquired prior to the beginning of fiscal
year 1997.  In March, 1997, management determined that attrition rates related
to the customer base acquired in connection with the UniNet acquisition were
also greater than expected.  Consequently, management, applying the requirements
of SFAS 121, determined that future cash flows from the acquired customer bases
would be less than that required to realize these assets.  Management then
reassessed the fair value of these assets by estimating the present value of the
future cash flows through updating with historical results the cash flow models
utilized to initially allocate the intangibles acquired.  As a result, the
Company incurred non-cash expense related to the provision to reduce the
carrying value of customer base acquisition costs and goodwill to their
respective estimated fair values.

The following table details the transactions which resulted in provisions:

                                        Provision
                  Total Unamortized     to Reduce     Balance After Provision
                     Intangibles         Carrying    -------------------------
Acquisition      Prior to Provision       Value      Customer Base    Goodwill
-----------      ------------------     ---------    -------------    --------


CRC                   $1,588,000       $  950,000     $  638,000       $    -
ValueTel               6,018,000        2,800,000      3,218,000            -
Quantum                  834,000          300,000        534,000            -
UniNet                 4,887,000        2,241,000      2,115,000        531,000

                                       F-17
<PAGE>

Because of the higher than expected attrition rates, the Company analyzed the 
expected remaining lives of its intangibles in accordance with SFAS 121. 
Consequently, the Company has established new periods for amortizing its 
customer base acquisition costs that it believes to be reasonable estimates 
of the remaining lives of these intangibles.  After the Company's 
reassessment of amortization periods for its customer base acquisition costs, 
the remaining useful lives assigned by the Company range from 4 to 6 years.

4. INCOME TAXES:

The Company follows the asset and liability method of accounting for deferred 
income taxes prescribed by SFAS No. 109, "Accounting for Income Taxes." 
Deferred income taxes reflect the net tax effects of temporary differences 
between the carrying amounts of assets and liabilities for financial 
reporting purposes and amounts used for income tax purposes.  A valuation 
allowance is provided for that portion of any deferred tax asset, for which 
it is deemed more likely than not that it will not be realized.  A valuation 
allowance of $1,227,000 has been established related to deferred tax assets 
resulting from the provision to reduce the carrying value of intangibles due 
to the uncertainty of realizing the full tax benefit of amortization of such 
intangible assets for tax purposes over 15 years.

The provision (benefit) for income taxes is composed of the following:

                                    1997          1996        1995
                                 ----------    ---------   ---------
Current provision (benefit)      $  27,000     $  15,000   $ 196,000
Deferred provision (benefit)      (724,000)      208,000      71,000
                                 ----------    ---------   ---------
Total provision (benefit) 
   for income taxes              $(697,000)    $ 223,000   $ 267,000
                                 ----------    ---------   ---------
                                 ----------    ---------   ---------

The following is a reconciliation of the actual provisions for income taxes 
to the expected amounts which are derived by applying the statutory rate to 
reported pretax income.  The expected statutory amount does not consider 
income (loss) related to Blue Ridge prior to June 17, 1996 because Blue Ridge 
was a partnership prior to that date.  

<TABLE>
                                                  1997            1996           1995
                                              ------------      ---------     ----------
<S>                                           <C>               <C>           <C>        
Expected statutory provision (benefit)        $(3,190,000)      $ 140,000     $ 392,000
Usage of net operating loss carryforwards            -               -          (75,000)
Effect of officer's life insurance                  3,000           2,000       (10,000)
Effect of revocation of United Wats 
  S Corporation Status                               -               -          (26,000)
Reclassification from current taxes payable       (45,000)         69,000          -     
Effect of merger expenses                          63,000            -             -     
Effect of intangibles amortization 
  and provisions                                1,235,000            -             -     
Other                                              10,000          12,000       (14,000)
                                              ------------      ---------     ----------
                                               (1,924,000)        223,000       267,000
Valuation allowance on deferred tax asset       1,227,000            -             -     
                                              ------------      ---------     ----------
Actual tax provision (benefit)                $  (697,000)      $ 223,000     $ 267,000
                                              ------------      ---------     ----------
                                              ------------      ---------     ----------
</TABLE>

                                      F-18
<PAGE>

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1997 and 1996:

<TABLE>
                                                                    MARCH 31,
                                        --------------------------------------------------------------
                                                   1997                               1996
                                        -----------------------------      ---------------------------
                                           ASSETS         LIABILITIES         ASSETS       LIABILITIES
                                        -----------       -----------      -----------     -----------
<S>                                     <C>               <C>              <C>             <C>
Allowance for doubtful accounts         $   516,000       $     -          $   419,000     $    -  
  
Depreciation                                   -             149,000              -          120,000
Amortization                                240,000             -               41,000          -
Effect of sale-leaseback                       -              72,000              -             -
Provision to reduce carrying value of 
  certain assets                          1,294,000             -                 -             -
Effect of conversion from cash basis 
  for income tax purposes                      -             284,000              -          240,000
Accounts receivable                            -                -                 -          929,000
Prepaid expenses                               -                -                 -           83,000
Accrued liabilities                          19,000             -              628,000          -
Other                                          -               9,000              -           16,000
                                        -----------       -----------      -----------     -----------
                                          2,069,000          514,000         1,088,000      1,388,000
Valuation allowance                      (1,227,000)            -                 -              -
                                        -----------       -----------      -----------     -----------
     Total                              $   842,000       $  514,000       $ 1,088,000     $1,388,000
                                        -----------       -----------      -----------     -----------
                                        -----------       -----------      -----------     -----------
</TABLE>

5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:

In December 1995, the Company renewed its line of credit ("1996 Facility") 
with a bank with $6,000,000 being available under the 1996 Facility.  
Borrowings under the 1996 Facility were scheduled to mature on April 30, 1997 
and bore interest at 1% above the prime rate (9.25% at March 31, 1996).  At 
March 31, 1996, $2,532,000 was outstanding under the 1996 Facility.  The 1996 
Facility was secured by certain accounts receivable of the Company and 
required compliance with certain financial and operating covenants which 
include minimum leverage and fixed charge coverage ratios.  At March 31, 
1996, the Company was in compliance with those covenants.

In May 1996, the Company entered into a $14,250,000 credit facility ("1997 
Facility") with another bank which includes a revolving credit facility and 
term loan facility.  Borrowings under the 1997 Facility were used to repay 
and retire the 1996 Facility.  Borrowings under the revolving credit portion 
of the 1997 Facility may not exceed the lesser of $11,000,000 less any 
reductions the lender may establish against such amount or 85% of eligible 
receivables.  Borrowings under the revolving facility bear interest at the 
prime rate plus 0.75% (9.0% at March 31, 1997).  Borrowings and unpaid 
interest on the revolving facility are repayable in full at maturity of the 
facility on June 1, 1999.

At March 31, 1997, borrowings outstanding under the revolving facility were 
$40,000.  Unused borrowing capacity under the revolving facility at March 31, 
1997 was $6,822,000.  As part of the 1997 Facility, the Company was also 
allowed to borrow $3,250,000 under a term loan facility.  The term loan is 
repayable in 36 equal monthly principal installments of $90,278 plus accrued 
interest.  The term loan bears interest at the prime rate plus 3% (11.25% at 
March 31, 1997). At March 31, 1997, the balance outstanding under the term 
facility was $2,437,000.  Substantially all of the assets of the Company 
including tangible assets, receivables and general intangibles, the 
definition of which includes but is not limited to intellectual property, 
business plans, business 

                                       F-19
<PAGE>

records and licenses, are pledged as collateral under the 1997 Facility.  The 
1997 Facility requires compliance with certain financial and operating 
covenants which include minimum leverage and fixed charge coverage ratios.  
As of March 31, 1997, the Company was not in compliance with certain 
financial covenants enumerated in the 1997 Facility. Accordingly, the Company 
received a waiver with respect to certain of such covenants from its lender 
as of March 31, 1997. As a result of and in connection with the merger 
transactions consummated in May 1997 (See Note 13), the Company complied with 
certain of the financial covenants, and has currently negotiated certain 
amendments to the credit facility to reflect changes in financial position 
and anticipated changes in business strategies and operating results 
associated with such transactions. While management, believes that the 
Company will be able to comply with the renegotiated loan agreement, there 
can be no assurance that the Company will not require additional waivers in 
the future or, if such waivers are required, that the lender will grant them. 

At March 31, 1997 and 1996, $68,000 and $343,000, respectively, remained 
outstanding on notes payable primarily to sellers of acquired entities 
incurred in connection with acquisition of customer bases.  Borrowings under 
these notes payable are unsecured, bear interest at 8% and mature in February 
2001.

At March 31, 1996, the Company had other notes payable outstanding to banks 
with aggregate balances of $109,000.  Borrowings under these notes were fully 
repaid by the Company during the year ended March 31, 1997.

Future maturities of long-term debt are as follows:

               1998           $  1,112,000
               1999              1,101,000
               2000                329,000
               2001                 16,000
                              ------------
                              $  2,558,000
                              ------------
                              ------------

Certain telecommunications equipment is leased under a capital lease agreement
expiring May 1998.  The following is an analysis of the equipment under capital
lease included in property and equipment:

                                              MARCH 31,
                                      --------------------------
                                         1997           1996
                                      -----------    -----------
Communications equipment              $  368,000     $  368,000
Less accumulated depreciation           (171,000)      (110,000)
                                      ----------     ----------
                                      $  197,000     $  258,000
                                      ----------     ----------
                                      ----------     ----------

The following is a schedule by years of the future minimum lease payments 
under capital lease together with the present value of the minimum lease 
payments as of March 31, 1997.

1998                                                 $103,000
1999                                                    9,000
                                                     ---------
Total minimum lease payments                          112,000
Amounts representing interest                          (8,000)
                                                     ---------
Present value of net minimum
  lease payments                                      104,000
Less: current portion                                 (96,000)
                                                     ---------
Long-term portion                                    $  8,000
                                                     ---------
                                                     ---------

                                       F-20

<PAGE>

6.  EMPLOYEE BENEFIT PLANS:

In May 1994, the Company adopted a stock incentive plan (the Plan) under which
certain employees are eligible to receive 100 shares of the Company's common
stock upon completion of their first anniversary of service.  All shares issued
under the Plan are held by the Company for a period of three years from the
issue date, at which time the employee vests if they are still employed with the
Company.  In the event the Company is sold, all employees vest immediately. 
Approximately 15,000, 19,300 and 17,600 shares of common stock had been awarded
under the Plan at March 31, 1997, 1996 and 1995, respectively.  Compensation
expense of $31,000, $51,000 and $42,000 was recognized in the years ended March
31, 1997, 1996 and 1995, respectively, related to the Plan.

In March 1996, the Company adopted a Defined Contribution Retirement Plan for
all eligible employees which qualifies under the provisions of Section 401(k) of
the Internal Revenue Code and was retroactively effective to January 1, 1996. 
Employees are allowed to make tax deferred contributions ranging from 1% to 15%
of their eligible compensation.  The Company matches 50% of the first 6% of each
employee's contribution and is eligible to make additional discretionary
contributions.  The Company recognized expense for contributions of $30,000
during the fiscal year ended March 31, 1997.

United Wats operates a Defined Contribution Retirement Plan which qualified
under the provisions of Section 401(k) of the Internal Revenue Code.  Employees
are allowed to make tax deferred contributions ranging from 1% to 15% of their
eligible compensation.  United Wats matches 25% of the first 6% of each
employee's contribution and is eligible to make additional discretionary
contributions.  Total profit sharing expense was $13,000 and $8,000 for the
years ended March 31, 1997 and 1996, respectively.

7.  STOCK WARRANTS:

The Company grants warrants to various directors, officers, employees and
nonemployees from time to time.  The warrants vest in periods ranging from
immediately following grant date to ten years from grant date.  Terms and
conditions of the Company's warrants, including exercise price and the period
warrants are exercisable, generally are at the discretion of the Company's Board
of Directors.  Each warrant granted allows for the purchase of one share of the
Company's common stock.  No warrants are exercisable for a period of more than
ten years.

The Company accounts for warrants issued under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized.  Had
compensation cost for these plans been determined consistent with SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income (loss) and
earnings (loss) per common share would have been reduced to the following pro
forma amounts:

                                                    YEAR ENDED MARCH 31,
                                                 --------------------------
                                                      1997           1996
                                                 ------------     ---------
Net income (loss):              As Reported      $ (7,854,000)  $   374,000
                                Pro Forma          (8,052,000)   (2,056,000)
Primary and fully diluted 
 earnings (loss) per share:     As Reported             (1.30)         0.07
                                Pro Forma               (1.40)        (0.42)

                                      F-21
<PAGE>

Because the method of accounting prescribed by SFAS No. 123 has not been applied
to options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

A summary of the status of the Company's stock warrants granted at March 31,
1997 and 1996 and changes during the years then ended is presented in the table
and narrative below:

                                         1997                     1996
                               ----------------------    --------------------
                                             Weighted                 Weighted
                                              Average                 Average
                                             Exercise                 Exercise
                                 Shares        Price      Shares       Price
                               ---------     --------    --------     --------
Outstanding, beginning of
 year                          1,202,002      $ 8.15      120,000      $7.50
  Granted                         90,000       10.15    1,092,002       8.22
  Exercised                          -            -           -           -
  Forfeited                     (230,000)       9.00      (10,000)      7.78
  Expired                            -            -           -           -
                               ---------      ------    ---------      -----
Outstanding, end of year       1,062,002      $ 8.14    1,202,002      $8.15
                               ---------      ------    ---------      -----
                               ---------      ------    ---------      -----
Exercisable, end of year         895,334      $ 8.21    1,002,000      $8.23
                               ---------      ------    ---------      -----
                               ---------      ------    ---------      -----
Weighted average fair value
 of options granted            $    4.22                $    4.41
                               ---------                ---------
                               ---------                ---------

The options outstanding at March 31, 1997 have exercise prices ranging from
$7.50 to $10.4375 with a remaining weighted average contractual life of 6.73
years.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for options granted during the years ended March 31, 1997 and
1996:

                                      Weighted Average Assumptions
                                      ----------------------------
                                          1997            1996
                                          ----            ----
       Risk free interest rate            5.9%            5.5%
       Expected life (years)              3.1             5.6
       Expected volatility               47.8%           40.3%
       Expected dividends                  -               -

8.  COMMITMENTS:

At March 31, 1997, the Company was committed under noncancellable,
noncapitalizable agreements for fixed cost transmission facilities that require
minimum payments of approximately $19,100,000 in 1998, $9,450,000 in 1999,
$8,100,000 in 2000 and $3,375,000 in 2001.

The Company leases office facilities and certain equipment under noncancellable
operating leases having initial or remaining terms of more than one year.  Rent
expense related to these leases was approximately $576,000,  $375,000, and
$81,000 for the years ended March 31, 1997, 1996 and 

                                      F-22
<PAGE>

1995, respectively. Approximate minimum lease payments under these operating 
leases are as follows:

             1998                                      $604,000
             1999                                       605,000
             2000                                       522,000
             2001                                       242,000
             2002                                        30,000

In April 1996, the Company entered into a sale-leaseback transaction whereby the
Company sold communications equipment to a financial institution and obtained a
lease for the communications equipment.  The lease requires annual payments of
$165,000 and expires in March 2000.  No gain or loss was recognized upon
consummation of the sale-leaseback transaction.  The lease is accounted for as
an operating lease.

Certain of the Company's facility leases include renewal options and all leases
include provisions for rent escalation to reflect increased operating costs
and/or require the Company to pay certain maintenance and utility costs.

9.  CONTINGENCIES:

On February 8, 1996, President Clinton signed the Telecommunications Act of 1996
(the "Telecom Act"), which permits, without limitation, the Regional Bell
Operating Companies (RBOCs) to provide domestic and international long distance
services to customers located outside of the RBOCs home regions; permits a
petitioning RBOC to provide domestic and international long distance service to
customers within its home regions upon a finding by the Federal Communications
Commission (the "FCC") that a petitioning RBOC has satisfied certain criteria
for opening up its local exchange network to competition and that its provision
of long distance services would further the public interest; and remove existing
barriers to entry into local service markets.  Additionally, there are
significant changes in the manner in which carrier-to-carrier arrangements are
regulated at the federal and state level; procedures to revise universal service
standards; and, penalties for unauthorized switching of customers.  The FCC has
instituted proceedings addressing the implementation of this legislation.

On August 8, 1996, the FCC released its First Report and Order in the Matter of
Implementation of the Local Competition Provisions in the Telecom Act (the "FCC
Interconnect Order").  In the FCC Interconnect Order, the FCC established
nationwide rules designed to encourage new entrants to participate in the local
service markets through interconnection with the incumbent local exchange
carriers ("ILEC"), resale of the ILECs retail services and unbundled network
elements.  These rules set the groundwork for the statutory criteria governing
RBOC entry into the long distance market.  The Company cannot predict the effect
such legislation or the implementing regulations will have on the Company or the
industry.  Motions to stay implementation of the FCC Interconnect Order have
been filed with the FCC and federal courts of appeal.  Appeals challenging,
among other things, the validity of the FCC Interconnect Order have been filed
in several federal courts of appeal and assigned to the Eighth Circuit Court of
Appeals for disposition.  The Eighth Circuit Court of Appeals has stayed the
pricing provisions of the FCC Interconnect Order.  The United States Supreme
Court has declined to review the propriety of the stay.  The Company cannot
predict either the outcome of these challenges and appeals or the eventual
effect on its business or the industry in general.

On December 24, 1996, the FCC released a Notice of Proposed Rulemaking seeking
to reform the FCC's current access charge policies and practices to comport with
a competitive or potentially 

                                       F-23
<PAGE>

competitive local access service market.  On May 7, 1997, the FCC announced
that it will issue a series of orders that reform Universal Services Subsidy
allocations, adopt various reforms to the existing rate structure for
interstate access that are designed to reduce access charges, over time, to
more economically efficient levels and rate structures.  In particular, the
FCC adopted changes to its rate structures for Common Line, Local Switching
and Local Transport rate elements.  The FCC generally removed from
minute-of-use access charges costs that are not incurred on a per-minute-
of-use basis, with such costs being recovered through flat rate charges.
Additional charges and details of the FCC's actions are to be addressed when
Orders are released within the near future.  Access charges are a principal
component of the Company's transmission costs.  The Company cannot predict
whether or not the result of these proceedings will have a material impact
upon its financial position or results of operations.

On May 21, 1997, the former Chief Executive Officer ("CEO") of the Company
initiated litigation against the Company in an effort to obtain the release of
shares subject to the common stock escrow agreement discussed in Note 2, or to
be otherwise compensated.  Based on the fair market value of freely tradable
common shares of the Company, the fair market value of the shares subject to
litigation at May 21, 1997 was approximately $2,650,000.  The outcome of this
litigation, which the Company is vigorously defending, is uncertain.  However,
if any of the escrowed shares of common stock are released, earnings (loss) per
common share would be reduced.  The fair value of any shares released from
escrow or any cash payment made to the former officer in connection with the
litigation would be charged to expense.

The Company is involved in legal proceedings generally incidental to its
business.  While the results of these various legal matters contain an element
of uncertainty, the Company believes that the probable outcome of any of these
matters, or all of them combined, should not have a material adverse effect on
the Company's consolidated results of operations or financial position.

10.  RELATED PARTY TRANSACTIONS:

The Company held notes receivable and related accrued interest from various
employees of $211,000 and $262,000 as of March 31, 1997 and 1996, respectively.
These notes, which are unsecured, include non-interest bearing notes and notes
bearing interest at a rate of 8%.

The Company is indebted to shareholders under notes payable aggregating $13,000
and $107,000, respectively, at March 31, 1997 and 1996.  The note payable
outstanding at March 31, 1997 bears interest at 8% and matures October 1997.
The notes are secured by communications equipment.

The Company leases office space and a retail facility from shareholders under
two operating leases.  Annual rentals under the leases totaled $33,000, $37,000,
and $36,000, respectively, for the years ended March 31, 1997, 1996 and 1995.

11.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid by the Company during the years ended March 31, 1997, 1996 and
1995 amounted to $471,000,  $261,000, and $88,000, respectively.  Income taxes
paid during the years ended March 31, 1997, 1996 and 1995, were $616,000,
$115,000 and $25,000, respectively.

In conjunction with business combinations and customer base acquisitions during
the years ended March 31, 1997, 1996 and 1995, assets acquired and non-cash
consideration issued were as follows:

                                      F-24
<PAGE>
                                                        MARCH 31,
                                         ---------------------------------------
                                             1997          1996          1995
                                         -----------   -----------   -----------
Fair value of tangible assets acquired   $   776,000   $ 2,135,000   $  438,000
Excess of cost over tangible
 assets acquired                           4,887,000     7,330,000    1,771,000
Accounts receivable forgiven                   --         (893,000)    (196,000)
Liabilities assumed                            --         (650,000)       --
Notes payable issued                           --         (532,000)       --
Common stock issued                       (1,862,000)   (6,289,000)    (232,000)
                                         -----------   -----------   -----------
Cash paid                                $ 3,801,000   $ 1,101,000   $1,781,000
                                         -----------   -----------   -----------
                                         -----------   -----------   -----------

For the year ended March 31, 1996, noncash transactions also included debt
incurred for purchase of equipment of $29,000 and other noncash transactions of
$8,000.  For the year ended March 31, 1995, noncash transactions included
retirement of treasury stock of $147,000, capital lease obligations incurred of
$67,000, other noncash transactions of $25,000 and redemption of preferred stock
of $191,000.

12.  CONCENTRATIONS AND TELECOMMUNICATIONS INDUSTRY RISKS:

Four of the Company's switchless customers accounted for approximately 13% of
revenues in 1996 and approximately 13% of gross accounts receivable at March 31,
1996.  The Company's five largest switchless customers accounted for
approximately 10% of revenues and approximately 9% of gross accounts receivable
at March 31, 1997.  The decrease in concentration of switchless customers
results from the Company's de-emphasis of its switchless reseller division.  The
Company performs initial and ongoing credit evaluations of its customers and
maintains an allowance for doubtful accounts.  Customers may be asked to provide
personal guarantees and/or security deposits.  If the financial condition and
operations of these switchless customers deteriorate below critical levels, the
Company's operating results could be adversely affected.

The Company faces intense competition in providing long distance
telecommunications service.  Domestically, the Company competes for services
with AT&T, MCI, Sprint and WorldCom, the local exchange carriers ("LECs") and
other national and regional interexchange carriers ("IXCs"), where permissible.
Certain of these companies have substantially greater market share and financial
resources than the Company, and some of them are the source of communications
capacity used by the Company to provide its own services.

The Company's long distance telephone business is dependent upon lease or resale
arrangements with fiber-optic and digital microwave carriers for the
transmission of calls.  The future profitability of the Company is based upon
its ability to transmit long distance telephone calls over transmission
facilities leased from others on a cost-effective basis.  The Company is
currently dependent on three primary carriers, Frontier Communications Services,
Inc., WorldCom Network Services, Inc. and Sprint.  The Company utilizes other
fiber optic carriers to a lesser extent to supplement communication transport
services, however, there can be no assurance that in the future the Company will
continue to have access, on an ongoing basis, to transmission facilities at
favorable rates.

The telecommunications industry is subject to rapid and significant changes in
technology.  While the Company does not believe that, for the foreseeable
future, these changes will either materially and adversely affect the continued
use of fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes

                                       F-25
<PAGE>

relating to emerging wireline and wireless transmission and switching
technologies, on the businesses of the Company cannot be predicted.

13.  SUBSEQUENT EVENTS:

In May 1997, the Company acquired Eastern Telecom International Corporation
("Eastern"), a provider of long distance telecommunications services, in a
transaction to be accounted for as a purchase.  The acquisition was consummated
with the issuance of 3,633,272 shares of the Company's common stock and cash of
$1,500,000.  Of the 3,633,272 shares issued, 63,492 shares are held in escrow
pending resolution of purchase price contingencies.  At March 31, 1997, Eastern
had total assets of $7,352,000 and shareholder's equity of $1,083,000.  For the
eleven month period ended March 31, 1997, Eastern had revenues of $20,429,000
and net income of $383,000.

In May 1997, the Company acquired National Teleservice, Inc. ("National"), a
provider of long distance telecommunications services, in a transaction to be
accounted for as a pooling-of-interests.  In exchange for all of the outstanding
common stock of National, the Company issued 3,274,188 shares of its common
stock, of which 155,524 shares are held in escrow pending resolution of purchase
price contingencies.  As the merger will be accounted for under the pooling-of-
interests method, the historical financial data of the Company will be restated
to include National data.  The following unaudited pro forma data summarizes the
combined results of operations of the Company and National as though the merger
had occurred at the beginning of the year ended March 31, 1995:

                          YEAR ENDED MARCH 31, (UNAUDITED)
                       --------------------------------------
                           1997          1996          1995
                       -----------   -----------   -----------
Revenues               $86,000,000   $67,580,000   $48,315,000
Net income              (6,674,000)      965,000     1,630,000
Earnings per share           (0.73)         0.12          0.21

Subsequent to the acquisitions discussed above, four principals of Eastern and
National were elected to be members of the Board of Directors.  In addition, a
new Chairman of the Board of Directors and CEO, Chief Financial Officer and
Treasurer, and Secretary were elected.  The newly elected Chairman and Chief
Executive Officer and Chief Financial Officer and Treasurer formerly served in
similar capacities for Eastern.  The newly elected Secretary formerly served as
President and Chief Executive Officer of National.

                                       F-26