<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
-------------------------------------------------------------------------------

                                   FORM 10-Q


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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                       OR

 [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                       COMMISSION FILE NUMBER: 333-56989

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

                        LONG DISTANCE INTERNATIONAL INC.
             (Exact name of Registrant as specified in its charter)

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

              FLORIDA                                          65-0423006
  (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                           identification No.)

 4150 SW 28TH WAY, FT. LAUDERDALE, FL                               33312
(Address of principal executive office)                           (Zip Code)

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

                                 (954) 327-7500
              (Registrant's telephone number, including area code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:            NONE

Indicate by check mark whether the registrant (1) 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 [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

 Number of shares of common stock outstanding at November 10, 1999: 57,703,371




                                                                              1
<PAGE>   2



                        LONG DISTANCE INTERNATIONAL INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                           PAGE NUMBER
                                                                                           -----------
<S>      <C>               <C>                                                                  <C>
Part I.  FINANCIAL INFORMATION

         Item 1.           Financial Statements

                           Condensed Consolidated Balance Sheets
                                    September 30, 1999 (unaudited) and December 31, 1998          3

                           Condensed Consolidated Statements of Operations (unaudited)
                                    For the three and nine months ended September 30, 1999
                                    and September 30, 1998                                        4

                           Condensed Consolidated Statements of Cash Flows (unaudited)
                                    For the nine months ended September 30, 1999 and
                                    September 30, 1998                                            5

                           Notes to Condensed Consolidated Financial Statements                   6

         Item 2.           Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                                   14

         Item 3.           Quantitative and Qualitative Disclosures about Market Risk            18



Part II.  OTHER INFORMATION

         Item 6.           Exhibits and Reports on Form 8-K                                      21


SIGNATURES                                                                                       22

</TABLE>






                                                                              2
<PAGE>   3

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

               LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                      December 31,         September 30,
                                                                                         1998                   1999
                                                                                     -------------         -------------
                                                                                                             (Unaudited)
<S>                                                                                  <C>                   <C>
                                        Assets:
   Current assets:
     Cash and cash equivalents                                                       $  52,064,072         $   4,405,230
     Certificates of deposit                                                             2,907,895                    --
     Restricted cash and investments                                                    30,410,363            54,032,614
     Accounts receivable, net of allowance for doubtful accounts
        of $4,210,000 at December 31, 1998 and $3,260,000 at
        September 30, 1999                                                              16,749,980            15,125,022
     Other current assets                                                                5,435,820             7,278,131
                                                                                     -------------         -------------
   Total current assets                                                                107,568,130            80,840,997
   Net assets of discontinued operations                                                27,625,441             4,793,837
   Restricted cash and investments                                                      36,600,856                    --
   Property and equipment, net                                                          38,258,615            31,655,372
   Goodwill, net of accumulated amortization of $3,223,000 at
     December 31, 1998 and $9,409,000 at September 30, 1999                            129,705,821           125,025,049
   Other assets                                                                          2,855,565             3,150,270
                                                                                     -------------         -------------
   Total assets                                                                      $ 342,614,428         $ 245,465,525
                                                                                     =============         =============

                         LIABILITIES AND COMMON SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
   Current liabilities:
     Accounts payable                                                                $  20,865,078         $  27,073,758
     Accrued telecommunication costs                                                    18,243,307            10,134,563
     Accrued restructuring costs                                                         3,014,752               778,199
     Other accrued liabilities                                                          11,580,401            11,525,367
     Accrued acquisition contingency                                                     7,508,029             7,508,029
     Senior Note interest payable                                                        5,976,563            12,626,563
     Notes payable                                                                       4,950,000            13,456,579
     Current portion of capital lease obligations                                       10,760,795            11,664,531
     Current portion of installment loans                                                2,840,776             5,278,389
                                                                                     -------------         -------------
   Total current liabilities                                                            85,739,701           100,045,978
   Installment loans                                                                     3,907,910                    --
   Capital lease obligations                                                            12,337,528             5,204,000
   Senior Notes payable                                                                205,863,147           207,002,521
   Commitments and Contingencies
   Redeemable convertible, preferred stock, Series A, cumulative
        $.001 par value - 2,600,000 shares authorized and
        2,456,556 shares issued and outstanding - liquidation value
        of $1,228,278 at December 31, 1998 and September 30, 1999                        1,199,278             1,254,550
   Redeemable preferred stock, Series B, cumulative $.001 par value -
        5,000,000 shares authorized and 2,500,000 shares issued
        and outstanding - liquidation value of $25,000,000                              14,275,864            15,717,386
   Redeemable warrants, 3,394,665 authorized, issued and
        outstanding at December 31, 1998 and September 30, 1999                         11,566,939            11,580,372
   Redeemable warrants, 12,543,714 authorized, issued
        and outstanding at September 30, 1999                                                   --               783,092
   Common shareholders' equity (capital deficiency):
     Common stock, $.001 par value - 250,000,000 shares
        authorized, 57,703,371 shares issued and outstanding at
        December 31, 1998 and September 30, 1999                                            57,703                57,703
   Additional paid-in capital                                                          110,540,448           109,003,040
   Accumulated other comprehensive loss                                                   (815,465)             (280,586)
   Accumulated deficit                                                                (102,058,625)         (204,902,531)
                                                                                     -------------         -------------
   Total common shareholders' equity (capital deficiency)                                7,724,061           (96,122,374)
                                                                                     -------------         -------------
   Total liabilities and common shareholders' equity
    (capital deficiency)                                                             $ 342,614,428         $ 245,465,525
                                                                                     =============         =============
</TABLE>

                                See accompanying notes.




                                                                             3
<PAGE>   4
               LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                     Three months ended September 30,    Nine months ended September 30,
                                                     --------------------------------   ---------------------------------
                                                           1998           1999              1998              1999
                                                      ------------     ------------     ------------     -------------
<S>                                                   <C>              <C>              <C>              <C>
     Revenues:
       Retail, net                                    $  7,692,742     $ 12,734,732     $ 14,878,798     $  52,900,732
       Wholesale, net                                           --       18,131,000               --        42,790,000
                                                      ------------     ------------     ------------     -------------
     Total revenues                                      7,692,742       30,865,732       14,878,798        95,690,732
     Costs of telecommunications services                6,577,352       25,080,558       13,020,946        80,799,568
                                                      ------------     ------------     ------------     -------------
     Gross margin                                        1,115,390        5,785,174        1,857,852        14,891,164

     Selling, general and administrative expenses        6,503,326       13,193,263       15,253,564        41,923,770
     Depreciation and amortization                       1,247,858        5,276,684        2,248,294        15,607,241
                                                      ------------     ------------     ------------     -------------
     Operating loss                                     (6,635,794)     (12,684,773)     (15,644,006)      (42,639,847)
     Other expense (income):
       Interest expense                                  7,738,513        8,373,456       14,540,357        24,643,442
       Interest income                                  (3,537,577)        (258,002)      (5,271,995)       (2,139,183)
                                                      ------------     ------------     ------------     -------------
                                                         4,200,936        8,115,454        9,268,362        22,504,259

     Loss from continuing operations                   (10,836,730)     (20,800,227)     (24,912,368)      (65,144,106)

     Discontinued operations:
       Loss from discontinued operations                (7,905,112)      (1,986,741)     (17,246,196)      (20,286,324)
       Loss on disposal of discontinued operations              --       (3,111,715)              --       (17,413,476)
                                                      ------------     ------------     ------------     -------------
     Net loss                                          (18,741,842)     (25,898,683)     (42,158,564)     (102,843,906)


     Preferred stock dividends and preferred stock
       and warrant redemption accretion                   (508,010)        (511,810)      (5,112,217)       (1,537,362)
                                                      ------------     ------------     ------------     -------------
     Net loss applicable to common shareholders       $(19,249,852)    $(26,410,493)    $(47,270,781)    $(104,381,268)
                                                      ============     ============     ============     =============

     EARNINGS PER SHARE APPLICABLE TO COMMON
         SHAREHOLDERS - BASIC AND DILUTIVE:

     Loss from continuing operations:                 $      (0.43)    $      (0.37)    $      (1.17)    $       (1.16)
     Loss from discontinued operations                       (0.30)           (0.09)           (0.67)            (0.65)
                                                      ------------     ------------     ------------     -------------

     Net loss per share                               $      (0.73)    $      (0.46)    $      (1.84)    $       (1.81)
                                                      ============     ============     ============     =============

     Weighted average shares outstanding                26,393,749       57,703,371       25,721,077        57,703,371
                                                      ============     ============     ============     =============

</TABLE>


                            See accompanying notes.



                                                                             4
<PAGE>   5
               LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                              ------------------------------------
                                                                                   1998               1999
                                                                              -------------         -------------
<S>                                                                           <C>                   <C>
  OPERATING ACTIVITIES:
  Net loss                                                                    $ (42,158,564)        $(102,843,906)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
    Depreciation and amortization                                                 2,248,294            15,607,241
    Provision for bad debts                                                         351,851               456,000
    Amortization of discount on Senior Notes and Notes payable                      557,459               901,281
    Amortization of bond offering costs                                                  --               872,671
    Loss on phase-out of discontinued operations                                         --             2,149,896
    Provision for writedown of assets                                                    --            16,955,493
    Changes in operating assets and liabilities:
         Accounts receivable                                                     (2,003,808)            1,168,958
         Other current assets                                                    (1,219,301)           (1,842,310)
         Other assets                                                            (2,977,893)             (294,705)
         Accounts payable                                                         2,501,003             6,208,680
         Accrued telecommunication costs                                           (732,548)           (8,108,744)
         Accrued restructuring costs                                                     --            (2,236,555)
         Senior Note interest payable                                            12,785,938             6,650,000
         Other accrued liabilities                                               (1,406,446)             (309,032)
         Discontinued operations - changes in assets and
           liabilites                                                            (8,575,852)            3,726,215
                                                                              -------------         -------------
  Net cash used in operating activities                                         (40,629,867)          (60,938,817)

  INVESTING ACTIVITIES:
  (Increase) decrease in restricted cash and investments                        (82,114,456)           12,978,605
  Redemption of certificates of deposit                                                  --             2,907,895
  Purchases of property and equipment                                            (3,159,574)             (434,336)
  Disposal of property and equipment                                                     --                57,000
  Purchase of minority interest in subsidiaries                                    (387,714)                   --
  Acquisition costs associated with purchase of Newgate                          (1,397,684)                   --
  Acquisition costs associated with purchase of NETnet                                   --            (1,407,352)
                                                                              -------------         -------------
  Net cash (used in) provided by investing activities                           (87,059,428)           14,101,812

  FINANCING ACTIVITIES:
  Proceeds from issuance of Senior Notes and redeemable warrants,
    net of offering costs                                                       216,508,954                    --
  Proceeds from issuance of common stock and exercise of warrants,
    net of offering costs                                                         1,683,510                    --
  Proceeds from issuance of Notes payable and warrants                                   --            10,000,000
  Payments on Notes payable                                                              --              (864,000)
  Bond offering costs                                                                    --              (508,042)
  Principal payments on capital lease obligations                                (1,276,779)           (8,762,377)
  Principal payments on installment loans                                        (1,956,621)           (1,222,297)
                                                                              -------------         -------------
  Net cash provided by (used in) financing activities                           214,959,064            (1,356,716)
  Effect of exchange rate changes                                                   122,086               534,879
                                                                              -------------         -------------
  Increase (decrease) in cash and cash equivalents                               87,391,855           (47,658,842)
  Cash and cash equivalents at beginning of period                               12,172,779            52,064,072
                                                                              -------------         -------------
  Cash and cash equivalents at end of period                                  $  99,564,634         $   4,405,230
                                                                              =============         =============

  SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Property and equipment acquired under capital leases                        $   3,143,383         $   2,532,539
                                                                              =============         =============
  Property and equipment purchased under installment loans                    $   8,000,000         $          --
                                                                              =============         =============
  Accrued dividends on Series A preferred stock                               $      55,273         $      55,273
                                                                              =============         =============
  Accretion on Series B preferred stock and redeemable warrants               $   1,471,086         $   1,482,089
                                                                              =============         =============

</TABLE>

                            See accompanying notes.


                                                                             5

<PAGE>   6

                        LONG DISTANCE INTERNATIONAL INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements for the
     interim periods are unaudited and do not include all the information and
     footnotes necessary for the presentation of financial position, results of
     operations and cash flows in conformity with generally accepted accounting
     principles.

     In the opinion of the management of Long Distance International Inc. (the
     "Company"), all adjustments necessary for a fair presentation of the
     results of the interim periods have been included. All adjustments were of
     a normal and recurring nature. The December 31, 1998 balance sheet was
     derived from the audited financial statements, but does not include all
     the disclosures required by generally accepted accounting principles. The
     results of operations for the three and nine month periods ended September
     30, 1999 are not necessarily indicative of the results to be expected for
     the full year ending December 31, 1999.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplated the realization of assets and satisfaction of
     liabilities in the normal course of business. As shown in the financial
     statements, the Company has incurred losses of $102,843,906 and $42,158,564
     for the nine months ended September 30, 1999 and 1998 respectively, and has
     a working capital deficit of $19,204,981 at September 30, 1999. These
     factors, among others, raise substantial doubt the Company's ability to
     continue as a going concern for a reasonable period of time. (See Note 8 -
     Liquidity)

     The financial statements do not include any adjustments relating to the
     recoverability and classification of assets and liabilities that might be
     necessary should the Company be unable to continue as a going concern other
     than those discussed in Note 7 - Discontinued Operations.

     The Company is in default on many of its capital and operating leases in
     the United States. The Company has not made a principal payment on a note
     payable when due (See Note 8 - Liquidity). In addition, many of the
     Company's other liabilities in the United States have not been paid within
     their stated terms. Subsequent to September 30, 1999, LDI Acquisition Sub
     Inc., a consolidated subsidiary of the Company ("LDI Acquisition")
     obtained a $2 million loan from a third party under the Loan Agreement
     (See Note 9 - Loan Agreement). On October 15, 1999, the Company made the
     scheduled semi-annual interest payment on the 12 1/4% Senior Notes due
     2008 (the "Notes"). In addition, on October 15, 1999, the holders of the
     Notes (the "Senior Noteholders") directed the Indenture Trustee to hold
     the interest payment and to not deliver it to the Noteholders. On November
     5, 1999, the Senior Noteholders directed the Indenture Trustee to advance
     up to $8 million of the interest payment to LDI Acquisition on the terms
     and conditions of the Loan Agreement. The Company understands that the
     Indenture Trustee continues to hold the remainder of the interest payment.
     The Company's continuation as a going concern is dependent upon obtaining
     additional funding through debt or equity financing or through the sale of
     the Company.

     The information included in these unaudited condensed consolidated
     financial statements should be read in conjunction with Management's
     Discussion and Analysis of Financial Condition and Results of Operations
     and the consolidated financial statements and accompanying notes included
     in the Company's Annual Report on Form 10-K for the fiscal year ended
     December 31, 1998.






                                                                              6
<PAGE>   7


2.   LOSS PER SHARE


     The Company computes loss per share pursuant to Statement of Financial
     Accounting Standards (SFAS) No. 128, Earnings Per Share. Weighted average
     shares outstanding does not include any contingently issuable shares. The
     dilutive effect of options, warrants and Series A convertible preferred
     stock have not been considered as their effect would be antidilutive for
     all periods presented.


3.   COMPREHENSIVE INCOME


     SFAS No. 130, Reporting Comprehensive Income, establishes standards for
     reporting and display of comprehensive income and its components in a full
     set of general-purpose financial statements. Comprehensive income is
     defined as the change in equity arising from non-owner sources. It
     includes net loss as well as foreign currency items, minimum pension
     liability adjustments, and unrealized gains and losses on certain
     investments in debt and equity securities. Other than net loss, the only
     such item applicable to the Company is foreign currency translations
     adjustment which did not have a material effect on the Company's
     consolidated financial statements. Comprehensive loss for the three months
     ended September 30, 1999 was $25,635,390 as compared to $18,654,832 in the
     same period in the prior year. Comprehensive loss for the nine months
     ended September 30, 1999 was $102,309,027 as compared to $42,036,478 in
     the same period in the prior year.


4.   SEGMENT ANALYSIS


     The Company operates in one industry segment, the telecommunications
     services industry, which includes international and domestic telephony as
     well as fixed-line to mobile services. The Company has reportable
     operating segments based on the geographical areas in which the Company
     provides services as well as the type of customer it sells to. Operating
     loss represents net revenues less operating costs and expenses, and does
     not include interest expense/income and other expense/income. All
     inter-company transactions have been eliminated. Other, as shown below,
     includes the Company's operations in Spain, Italy, France and the U.S.
     headquarters. The Company also supports headquarters operations in Sweden
     and the United Kingdom. The costs associated with those headquarters are
     included in the amounts below related to those respective countries.




                                                                              7
<PAGE>   8
<TABLE>
<CAPTION>


                                      Three Months Ended                 Nine Months Ended
                                           Sept. 30,                         Sept. 30,
                                 ---------------------------        ----------------------------
                                     1998           1999               1998            1999
                                 -----------    ------------        ------------    ------------
     <S>                         <C>            <C>                 <C>             <C>
     Revenue:

          United Kingdom         $ 4,147,265    $  7,707,000        $  9,910,840    $ 20,038,000
          Germany                         --       4,688,000                  --      14,457,000
          Sweden                          --       2,763,000                  --       8,857,000
          Norway                          --       1,111,000                  --       3,275,000
          Switzerland                     --       1,598,000                  --       4,943,000
          Austria                         --       2,089,000                  --       5,858,000
          Other                    1,030,760       2,978,732           2,453,241       5,674,732
          European - Wholesale     2,514,717       7,931,000           2,514,717      32,588,000
                                 -----------    ------------        ------------    ------------
     Consolidated revenue:       $ 7,692,742    $ 30,865,732        $ 14,878,798    $ 95,690,732
                                 ===========    ============        ============    ============

     Operating income (loss):

          United Kingdom         $(2,725,956)   $ (1,722,000)       $ (6,815,174)   $ (6,506,000)
          Germany                         --         (20,000)                 --        (238,000)
          Sweden                          --      (4,136,000)                 --     (13,252,000)
          Norway                          --        (487,000)                 --      (1,516,000)
          Switzerland                     --        (423,000)                 --      (1,252,000)
          Austria                         --         (82,000)                 --        (689,000)
          Other                   (3,909,838)     (5,707,773)         (8,828,832)    (18,705,847)
          European - Wholesale            --        (107,000)                 --        (481,000)
                                 -----------    ------------        ------------    ------------
     Total operating loss:       $(6,635,794)   $(12,684,773)       $(15,644,006)   $(42,639,847)
                                 ===========    ============        ============    ============
</TABLE>

5. ASSET IMPAIRMENT AND RESTRUCTURING COSTS


In December 1998, the Company implemented a worldwide plan to reduce selling,
general and administrative costs and increase efficiencies. In connection with
this program, the Company recorded charges of approximately $4.0 million in the
fourth quarter of 1998. The cash outlay related to these charges in the first
nine months of 1999 was approximately $1.9 million. Details of the change in
the restructuring accrual between December 31, 1998 and September 30, 1999 are
as follows:

<TABLE>
<CAPTION>

                                             DECEMBER 31, 1998          PAYMENTS       REDUCTION    SEPTEMBER 30, 1999
                                             -------------------------------------------------------------------------
<S>                                                <C>             <C>                <C>                   <C>
Involuntary employee terminations                  $ 2,411,170     $ (1,411,134)      $ (355,005)           $  645,031
Closure of facilities and related costs                239,582         (206,417)              --                33,165
Other costs                                            364,000         (263,997)              --               100,003
                                                   -----------     ------------       ----------             ---------
                                                   $ 3,014,752     $ (1,881,548)      $ (355,005)            $ 778,199
                                                   ===========     =============      ===========            =========
</TABLE>

Pursuant to the restructuring, the Company recorded $1.1 million in employment
contract obligations to executives. The Company has settled certain of these
obligations for lesser amounts and has recorded a reduction of $355,005 in the
reserve related to these settlements in the second quarter of 1999. The
remaining employment contract obligations are expected to be paid over the next
nine months.





                                                                              8
<PAGE>   9

6. CONTINGENCIES


Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event, would be limited to the $1,625,000 which the Company
placed in escrow during 1998. This amount is included in other assets in the
Company's Balance Sheet as of September 30, 1999. The Company intends to
vigorously defend against Viatel's claim but is unable to predict the ultimate
outcome of this matter and the amount of loss, if any.

In connection with the October 1998 acquisition of NETnet International A. B.
("NETnet"), 2,519,473 shares of the purchase price are contingently returnable
to the Company in connection with the accuracy of the seller's representations
and have been classified as an accrued liability of $7,508,029 at December 31,
1998 and September 30, 1999. These shares have not been included in the number
of shares used in the loss-per-share calculation for the nine months ended
September 30, 1999.

From time to time, the Company is a party to litigation arising in the normal
course of business. The Company is not currently engaged in any legal
proceedings that are expected to have a material adverse effect on the Company.


7. DISCONTINUED OPERATIONS


Following continued weakness in the United States operations, on May 18, 1999
the Company's Board of Directors agreed to a plan to discontinue the Company's
U.S. retail operations. Accordingly, the operating results of the discontinued
retail operations, including provisions for estimated losses during the
phase-out period, have been segregated from continuing operations and reported
as a separate line item on the statement of operations. Due to the subjective
nature of estimating future operating losses and incremental costs of disposal,
it is reasonably possible that these estimates may change in the future. Future
changes in estimates will be included in the statement of operations in the
period determined. The Company recorded an expense in the second quarter of
1999 in the amount of approximately $14.3 million to provide for the estimated
loss on disposition of the related assets and liabilities of the U.S. retail
operations and other expenses related to the closing of these operations and
approximately $3.1 million in the third quarter to provide for the estimated
loss in disposition of additional assets. Amounts recorded include
approximately $4.3 million for estimated operating losses during the phase-out
period subsequent to September 30, 1999 and approximately $450,000 for rent
under operating leases until the Company estimates it can sublease certain of
its facilities. In the third quarter, the Company recorded an additional $1.9
million for estimated operating losses during the phase-out period. Included in
the net assets of the discontinued operations at September 30, 1999 is $6.9
million for property and equipment relating to the Company's U.S. network which
is net of a write-down of $17.0 million to reserve for the expected loss on the
sale of the property and equipment. The Company is liable for capital lease
obligations and installment loans on this equipment. Accordingly, the lease
obligations of $9.6 million and installment loans of $5.2 million have not been
included in the net assets of the discontinued operation. As the Company is not
current on the payment of these leases, they are classified as current
obligations at September 30, 1999. (See Note 8 - Liquidity).

The consolidated financial statements and related footnotes of the Company have
been restated to report separately the net assets and operating results of the
U.S. retail operations as discontinued operations for all periods presented.

Net assets of the U.S. discontinued operations, which are presented as net
amounts in the Company's consolidated balance sheets at September 30, 1999 and
December 31, 1998, are as follows:





                                                                              9
<PAGE>   10

<TABLE>
<CAPTION>
                                                       December 31,       September 30,
                                                          1998                1999
                                                      ------------        ------------
<S>                                                   <C>                 <C>
Accopunts receivable                                  $  8,170,303        $    955,570
Property and equipment                                  20,560,597           6,922,314
Other assets                                               361,651              16,466
                                                      ------------        ------------
Total assets                                            29,092,551           7,894,350

Reserve for loss on disposition                                 --          (2,149,896)
Other liabilities                                       (1,467,110)           (950,617)
                                                      ------------        ------------
Total liabilities                                       (1,467,110)         (3,100,513)

Net assets of discontinued operations                 $ 27,625,441        $  4,793,837
                                                      ============        ============
</TABLE>

The results of discontinued operations for the nine months ended
September 30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>

                                                      September 30,       September 30,
                                                          1998                1999
                                                      ------------        ------------
<S>                                                   <C>                 <C>
Net revenues                                          $ 33,305,541        $ 11,537,468
Cost of telecommunications services                     22,419,596          15,620,524
                                                      ------------        ------------
Gross profit (loss)                                     10,885,945          (4,083,056)

Selling, general and administrative expenses           (28,132,141)        (14,339,294)
Estimated operating losses during the
  phase-out period of discontinued operations                   --          (1,863,974)
                                                      ------------        ------------
Loss from discontinued operations                     $(17,246,196)       $(20,286,324)
                                                      ============        ============
Loss on disposal of discontinued operations           $         --        $(17,413,476)
                                                      ============        ============

</TABLE>

8. LIQUIDITY

In January 1999, the Board of Directors authorized the Company to pursue
additional financing of approximately $40 million and subsequently retained
Morgan Stanley & Co. Incorporated ("Morgan Stanley") as its financial advisor.
Without prior notice at the end of June 1999, Morgan Stanley advised the
Company that it was abandoning its efforts to raise capital on behalf of the
Company and unilaterally terminating its engagement as financial advisor to the
Company. In connection with Morgan Stanley's termination of its engagement,
Morgan Stanley has advised the Company it is a holder of a significant portion
of the Notes. The Company has expressly reserved all rights, remedies, claims
and causes of action that it has or may have against Morgan Stanley in
connection with Morgan Stanley's engagement as financial advisor to the Company
and the terms and conditions of the termination of such engagement.

The Company's cash and cash equivalents at September 30, 1999, are not
sufficient to fund the operations of the Company through the end of 1999.
Through September 30, 1999, the Company was successful in raising an additional
$10 million of financing (see Note 9) of an original $40 million of financing
which was sought. During the second quarter of 1999, when it became apparent
that the Company would not be successful in obtaining all of the debt or equity
financing it was seeking, the Company began to consider all alternatives
available to it to raise additional liquidity and/or realize value on its
assets and operations. These options include the potential sale of the company
or a substantial amount of its assets or debt or equity financing.

As of September 30, 1999, the Company had not made certain payments to lessors,
lenders and vendors. The Company leases certain computer and telecommunications





                                                                            10
<PAGE>   11

equipment under non-cancelable capital leases with maturities of three to five
years. The Company has not made payments under these leases in the United
States for several months. These leases generally contain acceleration
provisions which allow the lease to become due in full as a result of
non-payment. Several of these lessors have notified the Company of defaults and
acceleration of the leases. Accordingly, the Company has reclassified all of
these U.S. leases as current in its Balance Sheet at September 30, 1999. The
Company did not make a scheduled principal payment of approximately $4 million
on a note payable to one of its European carriers which came due on September
30, 1999. The Company is negotiating with the carrier to restructure this debt.
(See "Liquidity and Capital Resources")

If the Company is unable to obtain additional debt or equity financing, to
successfully implement a strategic alliance or arrange a sale of the Company,
or substantially all of the Company's assets in the near future, together with
the financing necessary to consummate such a sale, it will have to file a
petition under the Federal Bankruptcy Code.

The consolidated Financial Statements do not include any adjustments to reflect
the possible future effects of the aforementioned on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from this uncertainty (See Note 1 - Basis of Presentation).


9. LOAN AGREEMENT


On July 20, 1999, LDI Acquisition borrowed $10,000,000 (the "Loan"), from
Frederick A. DeLuca ("DeLuca"), an existing stockholder of the Company,
pursuant to a term loan agreement (the "Loan Agreement"), among the Company,
LDI Acquisition, DeLuca, the lenders from time to time signatory thereto (the
"Other Lenders") and DeLuca, as collateral agent (in such capacity, the
"Collateral Agent"). The Loan has a one year term, expiring on July 20, 2000
(the "Initial Term"), and is extendable for up to an additional four months at
the option of the Company (the "Extended Term"). The principal amount of the
loan is payable at maturity. Interest is payable monthly and the loan bears
interest of 12-1/4% per annum during the Initial Term and 24-1/2% per annum
during the Extended Term. The loan is subject to a prepayment penalty if
prepaid prior to January 2000 and to substantial late charges if monthly
interest payments are not paid on a timely basis. The Loan Agreement has been
structured to allow for additional term loans (up to an aggregate principal
amount (together with the Loan) of $40,000,000) from the Other Lenders in
minimum term loan advances of $100,000. Any such future loans shall be made
subject to the terms of the Loan Agreement. The Company and LDI Acquisition
have agreed that the proceeds of any term loan advances which, together with
the Loan, exceed $32,500,000 would be used to repay the indebtedness of its
consolidated subsidiary NETnet to certain Scandinavian banks who currently have
a lien on the stock of NETnet.

The loan is secured by all the common stock of LDI Acquisition, pursuant to a
pledge agreement by the Company in favor of the Collateral Agent for the
ratable benefit of himself and the Other Lenders, and by all the capital stock
of the subsidiaries of LDI Acquisition to the extent possible, pursuant to a
pledge agreement by LDI Acquisition in favor of the Collateral Agent, for the
ratable benefit of himself and the Other Lenders. The subsidiaries of LDI
Acquisition represent all the non-U.S. based operations of the Company.

As additional consideration for, and as an inducement to DeLuca and the Other
Lenders to make loans under the agreement, the Company has agreed to issue to
the lenders a (i) Class A Common Stock Warrants (the "A Warrants") to purchase
up to 30% of the Company's common stock on a fully diluted basis as of the date
immediately preceding the closing of the Loan (the "Fully Diluted Shares") and
(ii) Class B Warrants (the "B Warrants"; together with the A Warrants, the
"Warrants") to purchase up to 20% of the Fully Diluted Shares (in each case,
assuming a full funding under the Loan Agreement of $40,000,000). The B
Warrants will become void in the event the term loan to which such Warrant
relates is paid on or prior to four months after such loan is made. To date,
Warrants have only been issued to DeLuca to purchase up to an aggregate of
12.5% of the Fully Diluted Shares (or 7.5% of the Fully Diluted Shares if the B
Warrants become void). Each Warrant is exercisable for a term of five years
from its exercise date (as hereinafter defined) and the exercise price for each
share of the Company's Common Stock exercisable under a Warrant is $.001 per
share. No Warrant is exercisable (assuming the B Warrant has not been voided)
until the earliest of:

         (a)      the sixteenth month anniversary date of the issuance of a
                  Warrant;

         (b)      the date the Company consummates an initial public offering
                  of shares of Common Stock pursuant to an effective
                  registration statement under the Securities Act of 1933;





                                                                             11
<PAGE>   12

         (c)      the date the Company consummates a sale of all or a
                  substantial portion of the business of the Company and its
                  consolidated subsidiaries taken as a whole, whether by way of
                  merger, acquisition, sale of assets or sale of capital stock;

         (d)      the date a bankruptcy petition is filed by or against the
                  Company, LDI Acquisition or a material operating subsidiary
                  of LDI Acquisition;

         (e)      the effective date of a waiver under the Indenture, dated as
                  of April 13, 1998 (the "Indenture"), pursuant to which the
                  Company's 12 1/4% Senior Notes due 2008 (the "Notes") were
                  issued, the effect of which waiver would be to waive the
                  requirement that the Company repurchase the Notes pursuant to
                  Section 4.12 of the Indenture because of a Change of Control
                  (as defined in the Indenture);

         (f)      the date on which the exercise of all A Warrants and all B
                  Warrants would not result in a Change of Control; and

         (g)      the date on which a Change of Control under the Indenture
                  occurs for a reason other than an exercise of any of the A
                  Warrants or B Warrants and a waiver with respect thereto
                  described in clause (e) above is not obtained; and

         (h)      the date on which Cliff Friedland and David Glassman cease to
                  be directors of the Company (other than by reason of their
                  death or disability) or beneficially own in the aggregate
                  less than 5,000,000 shares of Common Stock of the Company.

Additionally, as further consideration for the Loan, DeLuca (or his designee)
was given the right to a seat on the Company's Board of Directors. The Company
failed to make the scheduled monthly interest payments under the Loan Agreement
in September and October. However, the Company has received a forbearance from
the lenders under the Loan Agreement with respect to such missed interest
payments until the earlier to occur of November 30, 1999, or the filing of a
petition or complaint against the Company pursuant to Chapter 11 of Title 11 of
the United States Code (the "Bankruptcy Code") or any similar law.

As determined by the Company's Board of Directors, the value of the Warrants
was determined to be approximately $783,000, which resulted in a discount and
effective interest rate of 21% on the Loan. The discount is being amortized
over the initial term of the Loan.


10. EQUITY


On July 13, 1999, the Board of Directors of the Company approved Articles of
Amendment to the Second Restated Articles of Incorporation whereby the number
of common shares authorized was increased to 250,000,000, and the number of
shares of both classes of Preferred, which may be issued in either Series, was
increased by an additional 20,000,000 shares as designated by the Board of
Directors.


11. SUBSEQUENT EVENTS


On October 19, 1999, LDI Acquisition obtained a $2 million loan from a third
party, World Access, Inc. ("World Access"), an international long distance
provider and proprietary network equipment supplier. The loan was made under
the Loan Agreement (See Note 9 - Loan Agreement). In connection with the loan,
World Access entered into discussions with the Company regarding a potential
business transaction.

On October 15, 1999, the Company made the scheduled semi-annual interest
payment on the Notes in the amount of $13.8 million. In addition, on October
15, 1999, the Senior Noteholders directed the Indenture Trustee to hold the
interest payment and not to deliver it to the Senior Noteholders.

In the months of September and October, LDI Acquisition did not make scheduled
interest payments under the Loan Agreement. LDI Acquisition has received a
forbearance from the lenders under the Loan Agreement with respect to such
missed interest payments until the earlier to occur of November 30, 1999, or a
filing by or against the Company pursuant to Chapter 11 of the Bankruptcy Code
or a similar law.





                                                                             12
<PAGE>   13

On November 5, 1999, the Senior Noteholders directed the Indenture Trustee to
advance to LDI Acquisition up to $8 million of the interest payment pursuant to
the terms and conditions of the Loan Agreement. The Company understands that
the Indenture Trustee continues to hold the remainder of the interest payment.
The $8 million in advances is subject to certain budget compliance and advance
request notification. Approximately $6.3 million was drawn on November 5, 1999.
Advances are being made under the Loan Agreement (See Note 9 - Loan Agreement).
No advances may be made after the earlier to occur of a termination by the
Senior Noteholders or November 30, 1999.






                                                                             13
<PAGE>   14

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

Overview

As a consequence of the weakness in the U.S. operations, on May 18, 1999, the
Company's Board of Directors agreed to a plan to discontinue the Company's U.S.
retail operations. The results of operations and an estimate of the loss on
disposal are included in the consolidated financial statements as discontinued
operations. All periods presented have been restated to present the U.S. retail
operations as discontinued operations.


THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998


Revenues, net. Revenues increased to $30.9 million for the three months ended
September 30, 1999, as compared with $7.7 million for the three months ended
September 30, 1998. Billable minutes increased from 15.6 million for the three
months ended September 30, 1998 to 142.0 million for the three months ended
September 30, 1999. The increase was due primarily to the inclusion of the
results of NETnet International AB ("NETnet") and increased activity of the
Company's European wholesale division. NETnet was acquired in October 1998. Due
to the acquisition of NETnet, for the three months ended September 30, 1999,
the Company had revenues of $4.7 million in Germany, $2.8 million in Sweden,
$1.1 million in Norway, $2.1 million in Austria and $1.6 million in
Switzerland, while for the three months ended September 30, 1998, the Company
had no revenues in those countries. The Company's revenues in the U.K.
increased from $4.1 million for the three months ended September 30, 1998 to
$7.7 million in 1999. The Company's European wholesale division, which
commenced operations in the third quarter of 1998, contributed revenues of $7.9
million for the three months ended September 30, 1999 as compared to $2.5
million in the three months ended September 30, 1998. Average revenue per
minute decreased to $0.22 in the three months ended September 30, 1999 from
$0.49 in the three months ended September 30, 1998 primarily due to competition
and a change in the traffic mix due to increased volume of the wholesale
division.

Cost of Telecommunications Services. Cost of telecommunications services
increased by 280.3% to $25.1 million for the three months ended September 30,
1999, as compared with $6.6 million for the three months ended September 30,
1998. This increase is due to the increase in billable minutes partially offset
by the decline in cost per minute. Average cost per minute was $0.18 for the
three months ended September 30, 1999 as compared to $0.42 for the three months
ended September 30, 1998. This decrease primarily reflects cost reductions
available to the Company due to the increased volume in the three months ended
September 30, 1999 as compared to the three months ended September 30, 1998.
The Company's gross margin was 18.7% for the three months ended September 30,
1999 as compared to 14.5% for the three months ended September 30, 1998. The
improvement in the gross margin percentage is primarily due to operational
improvements and lower costs from suppliers, offset slightly by pricing
pressure from customers. The Company's wholesale division generally has a
substantially lower gross margin than the Company's retail division due to
competitive pressures.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 103.1% to $13.2 million for the
three months ended September 30, 1999, as compared to $6.5 million for the
three months ended September 30, 1998. The increase resulted primarily from
additional expenses in Europe as a result of the acquisitions of NETnet in
1998. Due to the acquisition, the Company is now supporting offices in 9
countries in Europe and has increased its employee base in Europe from 123
employees at September 30, 1998 to 354 employees at September 30, 1999. SG&A
decreased as a percent of revenue to 42.7% for the three months ended September
30, 1999 from 84.5% for the same period in the prior year. The change is
primarily due to the significant growth of the Company's European revenue along
with a concerted effort to minimize expenses in Europe subsequent to the
acquisition of NETnet.

Depreciation and Amortization. Depreciation and amortization increased to $5.3
million for the three months ended September 30, 1999, from $1.2 million for
the three months ended September 30, 1998. The increase was due to
significantly more fixed assets, primarily office equipment and network
equipment acquired by the Company to complete the build-out of its European
network, and the increase in fixed assets in Europe due to the acquisition of
NETnet. In addition, goodwill amortization increased significantly due to the
acquisition.





                                                                             14
<PAGE>   15

Loss from Continuing Operations. Loss from continuing operations increased to
$20.8 million for the three months ended September 30, 1999, from $10.8 million
for the three months ended September 30, 1998. The aforementioned factors
caused this increase.

Discontinued Operations. As a consequence of the continued weakness in the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations. Accordingly, the Company's
consolidated financial statements for September 30, 1999 and 1998 have been
restated to include the U.S. retail operations as discontinued operations. In
the three months ended September 30, 1999, the Company recorded an addition of
$2.7 million to its previous estimate of $19.3 million loss and anticipated
disposition of the related assets and liabilities. The Company had previously
recorded $4.3 million for the estimated operating losses during the phase-out
period and in the third quarter increased this estimate by $2.0 million. This
includes sale of the Company's U.S. network, U.S. customer base and cessation
of all marketing to U.S. retail customers. The Company also laid off three
fourths of its U.S. based employees in accordance with the Workers Adjustment
and Retraining Notification Act.

Net Loss. Net loss increased to $25.9 million for the three months ended
September 30, 1999 from $18.7 million for the three months ended September 30,
1998. This increase was due to increased losses from operations together with
increased interest expense resulting from the issuance of the 12 1/4% Senior
Notes Due 2008 and related Warrants completed in April 1998 and from additional
interest on financing of equipment.


NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998


Revenues, net. Revenues increased to $95.7 million for the nine months ended
September 30, 1999, as compared with $14.9 million for the nine months ended
September 30, 1998. Billable minutes were 372.1 million for the nine months
ended September 30, 1999 as compared to 36.5 million for the nine months ended
September 30, 1998. The increase was due primarily to the inclusion of the
results of Newgate Communications Ltd. ("Newgate") acquired in April 1998, and
NETnet and increased activity of the Company's European wholesale division. Due
to the acquisition of NETnet, the Company had revenues of $8.9 million in
Sweden, $14.5 million in Germany, $4.9 million in Switzerland, $5.9 million in
Austria and $3.3 million in Norway, while during the nine months ended
September 30, 1998 there were no revenues in these countries. The increase in
U.K. revenues from $9.9 million for the nine months ended September 30, 1998 to
$20.0 million for the nine months ended September 30, 1999 was primarily due to
the acquisition of Newgate in April 1998. The Company's European wholesale
division, which commenced operations in the third quarter of 1998, contributed
revenues of $32.6 million during the nine months ended September 30, 1999 as
compared to $2.5 million during the nine months ended September 30, 1998.
Average revenue per minute decreased from $0.41 for the nine months ended
September 30, 1998, to $0.26 for the nine months ended September 30, 1999,
primarily due to competition.

Cost of Telecommunications Services. Cost of telecommunications services
increased by 522% to $80.8 million for the nine months ended September 30,
1999, as compared with $13.0 million for the nine months ended September 30,
1998. The increase in cost of telecommunications services is due to the
increase in billable minutes in the nine months ended September 30, 1999 as
compared to the same period in 1998. Average costs per minute decreased to
$0.22 for the nine months ended September 30, 1999 from $0.36 for the nine
months ended September 30, 1998. This decrease reflects operational
improvements and lower costs from suppliers. The Company's gross margin was
15.6% for the nine months ended September 30, 1999 as compared to 12.5% for the
nine months ended September 30, 1998. The increase in the gross margin
percentage is primarily due to operational improvements and lower costs from
suppliers offset slightly by customer pricing pressure. The Company's wholesale
division generally has a substantially lower gross margin than the Company's
retail division due to competitive pressures.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 174% to $41.9 million for the
nine months ended September 30, 1999, as compared with $15.3 million for the
nine months ended September 30, 1998. The increases resulted primarily from
additional expenses in Europe as a result of the acquisitions of NETnet and
Newgate in 1998. As a result of these acquisitions, the Company is now
supporting offices in 9 countries in Europe and increased its European employee
base from 123 employees at September 30, 1998, to 354 at September 30, 1999.
SG&A as a percent of revenue decreased to 43.8% for the nine months ended
September 30, 1999 from 102.5% for the same period in the prior year. The
decrease is primarily due to the significant growth of our European revenue
along with a concerted effort to minimize expenses in Europe subsequent to the
acquisitions of NETnet and Newgate.





                                                                             15
<PAGE>   16

Depreciation and Amortization. Depreciation and amortization increased to $15.6
million for the nine months ended September 30, 1999, from $2.2 million for the
nine months ended September 30, 1998. Goodwill amortization increased to $6.1
million due to the acquisitions of Newgate and NETnet. Depreciation increased
to $9.5 million due to significantly more fixed assets, primarily office
equipment and network equipment as the Company completed the build-out of its
network, and the increase in fixed assets in Europe in connection with the
acquisitions of Newgate and NETnet.

Loss from Continuing Operations. Loss from continuing operations increased to
$65.1 million for the nine months ended September 30, 1999, from $24.9 million
for the nine months ended September 30, 1998. The aforementioned factors caused
this increase.

Discontinued Operations. As a consequence of the continued weakness of the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations and the Company's consolidated
financial statements for September 30, 1999 and 1998 have been presented to
include the U.S. retail operations as discontinued operations. During the first
nine months of 1999, the Company recorded an estimated loss on the operations
and disposition of the related assets and liabilities of $37.7 million. This
amount included $6.2 million for the estimated operating losses during the
phase-out period. This includes sale of the Company's U.S. network, U.S.
customer base and cessation of all marketing to U.S. retail customers. The
Company also laid off three fourths of its U.S. based employees in accordance
with the Workers Adjustment and Retraining Notification Act.

Net Loss. Net loss increased to $102.8 million for the nine months ended
September 30, 1999 as compared to $42.2 million for the nine months ended
September 30, 1998. This increase was due to increased losses from operations
together with increased interest expense resulting from the issuance of the
12 1/4% Senior Notes and Warrants Due 2008 completed in April 1998.


LIQUIDITY AND CAPITAL RESOURCES


As of September 30, 1999, the Company had cash and cash equivalents of $4.4
million as compared with cash and cash equivalents of $52.1 million on December
31, 1998. In addition, the Company had $54.0 million of restricted cash subject
to a Pledge Agreement securing such cash for the benefit of the Senior
Noteholders, as compared with $67.0 million of restricted cash on December 31,
1998. LDI's cash and cash equivalents at September 30, 1999, together with the
$10 million proceeds of the secured debt raised during July 1999, are not
sufficient to fund the operations of the Company through the end of 1999.

The Company estimates that it would require an additional $30 million to fund
operations through December 31, 1999, including the payment of certain
obligations which are past due. Actual cash requirements may vary significantly
from the Company's estimates depending upon numerous factors including sales
levels, competitive pressures and regulatory actions. The Company has taken
steps to reduce its operating losses and reduce the scope of its operations by
closing its retail business in the United States.

As a result of limited liquidity, the Company has not made certain payments to
U.S. lessors, lenders and vendors. The Company leases certain computer and
telecommunications equipment under non-cancelable capital leases with
maturities of three to five years. The Company has not made payments under
these leases for several months. These leases generally contain acceleration
provisions which allow the lease to become due in full as a result of
non-payment. Several of these lessors have notified the Company of defaults and
acceleration of the leases. Accordingly, the Company has reclassified all of
these leases as current in its Balance Sheet at September 30, 1999. The Company
did not make a scheduled principal payment of approximately $4 million on a
note payable to one of its European carriers which came due on September 30,
1999. The Company is negotiating with the carrier to restructure this debt.
Also, in September and October, LDI Acquisition did not pay interest due under
the Loan Agreement. LDI Acquisition has received a letter whereby the lender(s)
have agreed to forebear from exercising their remedies with respect to such
missed interest payments, through the earlier of to occur of November 30, 1999,
and the filing of any petition by or against the Company pursuant to Chapter 11
of the United States Bankruptcy Code or any similar law.

On October 15, 1999, the Company made the scheduled semi-annual interest
payment on the Notes in the amount of $13.8 million. In addition, on October
15, 1999, the Senior Noteholders directed the Indenture Trustee to hold the
interest payment and not to deliver it to the Senior Noteholders.





                                                                             16
<PAGE>   17

On October 19, 1999, LDI Acquisition obtained a $2.0 million loan from World
Access, Inc., an international long distance and proprietary network equipment
provider. The loan was made under the Loan Agreement. The Company is in
discussions with World Access regarding a potential business transaction.
Furthermore, on November 5, 1999, the Senior Noteholders directed the Indenture
Trustee to advance to LDI Acquisition up to $8 million of the interest payment
pursuant to the terms and conditions of the Loan Agreement. The Company
understands that the Indenture Trustee continues to hold the remainder of the
interest payment. The $8 million in advances is subject to certain budget
compliance and advance request notification. On November 5, 1999, approximately
$6.3 million was advanced. The advances are being made under the Loan
Agreement. No advances may be made after the earlier to occur of a termination
by the Senior Noteholders or November 30, 1999.

If the Company is unable to obtain additional debt or equity financing, to
successfully implement a strategic alliance or arrange a sale of the Company or
substantially all of the Company's assets in the near future, together with the
financing necessary to consummate such a sale, it will have to file a petition
under the Bankruptcy Code.

There can be no assurance that the Company will be successful in its sale
efforts or in obtaining the financing necessary to consummate such a sale. In
addition, there can be no assurances as to the amount of proceeds that will be
received from any sale of the Company. There can also be no assurance that the
Company will be successful in implementing any other alternative.

The Company expects to continue to incur significant operating and net losses
and to make substantial capital expenditures for the foreseeable future. The
operating and net losses are due to the start-up and development of the
Company's operations including the operations of NETnet. The Company has
incurred significant capital expenditures in connection with the development of
its telecommunications network. To date, the Company has utilized cash provided
from financing activities to fund losses and capital expenditures. The sources
of this cash include the Company's 12 1/4% Senior Notes Due 2008 issued in
1998, and to a lesser extent, vendor financing of equipment and IRU's.

Net cash used in operating activities was $60.9 million for the nine months
ended September 30, 1999 as compared to $40.6 million for the nine months ended
September 30, 1998. The Company's net cash used in operating activities in the
nine months ended September 30, 1999 was primarily composed of a net loss of
$102.8 million offset by $36.9 million of non-cash charges and $5.0 million of
changes in working capital. Included in these non-cash charges are $15.6
million for depreciation and amortization, $17.0 million to write down assets
to fair value and $2.1 million for future operating losses of the Company's
discontinued operations. Net cash used in operating activities in the nine
months ended September 30, 1998 consisted of a net loss of $42.2 million offset
by $3.2 million of non-cash charges and $1.6 million changes in working
capital.

Net cash provided by investing activities was $14.1 million for the nine months
ended September 30, 1999 as compared with net cash used in investing activities
of $87.1 million for the nine months ended September 30, 1998. Cash provided by
investing activities in the nine months ended September 30, 1999 was comprised
primarily of approximately $434,000 for capital expenditures and a $15.9
million decrease in restricted cash, investments and certificates of deposits
and $1.4 million for acquisition costs. Cash used in investing activities in
the nine months ended September 30, 1998 consisted primarily of a $82.1 million
increase in restricted cash and investments, $3.2 million for capital
expenditures and $1.8 million for acquisition costs relating to Newgate and
NETnet.

Net cash used in financing activities was $1.4 million for the nine months ended
September 30, 1999 as compared to net cash provided by financing activities of
$215.0 million for the nine months ended September 30, 1998. Cash used in
financing activities in the nine months ended September 30, 1999 consisted
primarily of payments on capital lease obligations, installment loans and notes
payable of approximately $10.9 million offset by $10 million of proceeds from
Notes Payable. Cash provided by financing activities in the nine months ended
September 30, 1998 was comprised primarily of proceeds from the issuance of the
Senior Notes and Redeemable Warrants and common stock and warrants. This was
partially offset by $3.2 million in payments on capital lease obligations and
installment loans.

Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event would be limited to the $1,625,000 which the Company
placed in escrow during 1998. The Company intends to vigorously defend against
Viatel's claim but is unable to predict the ultimate outcome of this matter and
the amount of loss, if any.





                                                                             17
<PAGE>   18

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

FOREIGN CURRENCY EXPOSURE AND EUROPEAN MONETARY UNION

The Company is exposed to fluctuations in foreign currencies relative to the
United States dollar because the Company generally bills in local currency,
while transmission and other costs are paid in a mix of United States Dollars
and local currency. Interest expense on the 12 1/4% Senior Notes Due 2008 will
be paid in United States dollars. For the nine months ended September 30, 1999
and September 30, 1998, approximately 99% and 83%, respectively, of the
Company's revenues from continuing operations were billed in currencies other
than the United States dollar. The Company periodically evaluates the use of
foreign exchange contracts to hedge foreign currency exposure and to control
risks relating to foreign currency fluctuations. The Company does not use
derivative financial instruments for speculative purposes. As of September 30,
1999, the Company had no open foreign currency positions.

On January 1, 1999 eleven of the existing members of the European Union ("EU")
joined the European Monetary Union. This will lead, among many other things, to
fundamental changes in the way participating EU states implement their monetary
policies and manage local currency exchange rates. Ultimately, there will be a
single currency within certain countries of the EU, known as the Euro and one
organization, the European Central Bank, responsible for setting European
monetary policy. While some believe that the change will bring a higher level
of competition within Europe and a greater sense of economic stability within
the region, there is no certainty that the Company's activity in this region
will necessarily realize any benefits as a result of such changes. The Company
has reviewed the impact the Euro will have on its business and whether this
will give rise to a need for significant changes in its commercial operations
or treasury management functions. While it is uncertain whether or not there
will be any immediate direct benefits from the planned conversion, the Company
believes it is properly prepared to accommodate any changes deemed necessary to
implement use of the Euro without any significant changes to its current
commercial operations, treasury management and management information systems.

IMPACT OF YEAR 2000

"Year 2000 Readiness" which affects many corporations, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date sensitive information relating to the Year 2000 and
beyond. The Company has initiated a company-wide program to identify and
address issues associated with the ability of its date sensitive information,
telephony and business systems, as well as certain other pertinent equipment,
to properly recognize Year 2000 Readiness issues in order to avoid interruption
of the operation of these systems or equipment as a result of the century
change on January 1, 2000 (the "Readiness Initiative Project"). The Readiness
Initiative Project is also designed to assess the impact on the Company of the
readiness of third party business entities with which the Company is engaged in
business or for which the Company provides services.

Inability to reach substantial Year 2000 Readiness in the Company's systems and
integral third party systems could result in interruption or failure of the
Company's ability to provide telecommunications services, interruption or
failure of the Company's customer billing processes, operating and other
information technology systems and/or failure of certain date sensitive
equipment. Such interruptions or failures could result in claims by customers
and/or loss of revenue due to service interruption and/or delays in the
Company's ability to bill its customers in an accurate and timely manner.
Additionally, increased expenses associated with litigation and/or
stabilization of operations following such interruptions or failures or
execution of Year 2000 contingency plans could, and most probably would result
in significant revenue and cost issues.

The Readiness Initiative Project is being conducted by a management team that
is coordinating all efforts. The management team is utilizing resources
consisting of internal staff, external resources, third party network
providers, and external business vendors. The Company intends to identify and
make any necessary changes. Ongoing systems and applications upgrades are being
tested and made Year 2000 ready as they are implemented. As part of the
Readiness Initiative Project, the Company has been communicating directly with,
or reviewing disclosures made by, incumbent LECs, carriers, switch providers,
information systems vendors and other third parties that may impact the
Company's readiness for the Year 2000. Such persons have represented, in these
communications or disclosures, that the information systems of such persons, to
the extent they would have an impact on the Company, are or by January 1, 2000,
will be Year 2000 ready. The Company's software providers have certified to the
Company that such software is Year 2000 ready.





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<PAGE>   19

The Company has completed all Year 2000 Readiness conversion and testing issues
for its most critical business systems used in domestic operations. Year 2000
conversion, testing, and deployment for international systems is expected to be
completed by late 1999.

The Company has developed several contingency plans for conducting its business
operations in the event of crisis, including system outages or natural
disasters. As a part of the Readiness Initiative Project, the Company is
reviewing its other business contingency plans to ensure they adequately
address Year 2000 Readiness issues that may also arise. The Company's
operational systems, such as billing and accounting, are also being addressed
in this endeavor.

The Company's Year 2000 contingency efforts cover all aspects of the Company's
business objectives. The two most important criteria are the Company's ability
to carry telecommunications traffic and to bill for such traffic.

The Company's telecommunications switches are configured to operate in
stand-alone mode, parallel mode, and/or re-route mode. In the instance of
outages, the Company's network traffic is re-routed using switch software. The
Company's network switches employ self-healing architecture capable of
automatic re-routing should the need arise. In the case of natural disasters,
the Company's switches operate in a fully redundant, full parallel mode. This
mode allows the Company's traffic to be either re-routed or run in a parallel
state. The Company believes the necessary geographic disparity between switches
also provides another level of contingent security.

The Company's information technology, though different in objective, employs
similar architectural standards. The Company's data network is also a
self-healing, fully redundant network capable of re-routing data information to
and from various Company locations. The existence of parallel servers in
disparate locations enables The Company to maintain full operational status of
its information technology infrastructure.

Some of the costs associated with the Company's Readiness Initiative Project
were incurred in the nine months ended September 30, 1999 and the remainder
will be incurred during 1999. The Company estimates the costs will be
approximately $2.0 million over the life of, and adherence to, the project. The
Company intends to continually reassess the estimated costs and status of its
Year 2000 remediation efforts.

The Company currently anticipates the mission critical systems it controls in
its domestic and international operations to be fully Year 2000 ready by
January 1, 2000. However, no assurance can be given that unforeseen
circumstances will not arise during the performance of the testing and
deployment phases of the Company's Readiness Initiative Project that would
adversely affect the Year 2000 Readiness of the Company. Furthermore, the Year
2000 Readiness of the Company's integral third party networks is not yet fully
known. As a result, the Company is unable to determine the impact that any
third party systems interruptions or failures would have on the Company's
business, results of operations or financial condition.

INFLATION

The Company does not expect inflation to have any significant impact on its
business, financial condition or results of operations.

SEASONALITY

The Company believes its business is not subject to significant seasonality
based on historical trends.





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<PAGE>   20



FORWARD LOOKING STATEMENTS

Certain statements contained in this Form 10-Q constitute "forward looking
statements" made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. As such, they involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in such forward looking statements. The Company's forward looking
statements are based on assumptions about, or include statements concerning,
many important factors, including without limitation changes in customer usage
and customer preferences, the Company's ability to effectively implement its
strategies, including its expansion, network development and advanced
information system strategies; competitive trends and consolidation within the
telecommunications industry; the effect of economic changes in other countries
in which the Company does business; and other factors described herein. While
the Company believes that its assumptions are reasonable, it cautions that it
is impossible to predict the impact of certain factors which could cause actual
results to differ materially from expected results.






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<PAGE>   21
Part II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:

         3.3   Articles of Amendment to Second Restated Articles of
               Incorporation

         10.25 Amendment to Pledge Agreements

         10.26 Amendment No. 1 to Term Loan Agreement

         10.27 Promissory Note in the principal amount of $2,000,000

         10.28 Class A Bridge Loan Warrant to Purchase Common Stock

         10.29 Class B Bridge Loan Warrant to Purchase Common Stock

         27    Finanical Data Schedule(For SEC use only)

(b)      Reports on Form 8-K:


         None






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<PAGE>   22
                        LONG DISTANCE INTERNATIONAL INC.

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned, thereunto duly authorized.



LONG DISTANCE INTERNATIONAL INC.



                                   By: /s/ Elizabeth  A. Tuttle
                                       ----------------------------------------
                                           Elizabeth  A. Tuttle
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)


Date:  November 15, 1999







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