UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-2180
TOTAL-TEL USA COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-1656895
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Clove Road, 8th Floor, Little Falls, NJ 07424
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 812-1100
Not applicable
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes__X__ No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 11, 1996
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Common Share, $.05 par value 2,936,330 shares
TOTAL-TEL USA COMMUNICATIONS, INC.
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AND SUBSIDIARIES
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SECOND QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statement of Earnings
Six months ended July 31, 1996 and 1995
(unaudited) and three months ended July
31, 1996 and 1995 (unaudited) 3
Condensed Consolidated Balance Sheets
July 31, 1996 (unaudited), and
January 31, 1996 4-5
Condensed Consolidated Statements of Cash Flows
Six months ended July 31, 1996 and 1995
(unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Items 1-5 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- ------------------
July 31, July 31,
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1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 40,487,602 $ 22,135,323 $ 23,117,555 $ 11,619,711
Costs and Expenses
Cost of Sales 29,677,300 15,620,184 17,088,793 8,219,056
Selling, general and administrative 8,752,452 5,536,177 4,777,632 2,990,285
---------- ---------- ---------- ---------
38,429,752 21,156,361 21,866,425 11,209.341
---------- ---------- ---------- ----------
Operating Income 2,057,850 978,962 1,251,130 410,370
--------- ------- --------- -------
Other Income (Expense)
Interest income 61,162 95,985 37,543 65,868
Other income 37,265 6,132 21,522 5,130
Interest expense - (4,909) - (902)
---------- ---------- ---------- -----------
Total Other Income 98,427 97,208 59,065 70,096
----------- ---------- ---------- ----------
Earnings before provision for income taxes 2,156,277 1,076,170 1,310,195 480,466
Provision for Income Tax 871,400 416,300 528,700 186,200
----------- ---------- ---------- ----------
NET EARNINGS $ 1,284,877 $ 659,870 $ 781,495 $ 294,266
------------- ------------ ------------ ------------
NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $0.38 $0.20 $0.23 $0.09
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Weighted Average Shares Outstanding 3,413,842 3,278,556 3,357,164 3,290,842
------------- ------------ ------------ ------------
Dividends Per Share NONE NONE NONE NONE
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</TABLE>
See notes to condensed consolidated financial statements.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1996 1996
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(Unaudited) (Note)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,319,448 $ 3,177,138
Investments available for sale 1,194,555 966,935
Accounts receivable 13,104,835 8,741,918
Note receivable 134,156 27,000
Deferred income taxes 350,600 314,600
Prepaid expenses and other current assets 588,092 392,974
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TOTAL CURRENT ASSETS 18,691,686 13,620,565
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PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 7,446,030 6,011,005
OTHER ASSETS:
Note Receivable 90,281 90,281
Deferred line installation costs, less
accumulated amortization 260,634 247,019
Other assets 444,762 426,164
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795,677 763,464
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$ 26,933,393 $ 20,395,034
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</TABLE>
NOTE: The balance sheet at January 31, 1996 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1996 1996
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(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $10,739,621 $ 6,604,459
Other current and accrued liabilities 2,477,356 1,775,256
Salaries and wages payable 685,765 441,516
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TOTAL CURRENT LIABILITIES 13,902,742 8,821,231
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OTHER LONG-TERM LIABILITIES 286,481 313,742
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DEFERRED INCOME TAXES 714,001 560,481
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SHAREHOLDERS' EQUITY
Common stock 93,671 93,440
Additional paid-in capital 3,634,766 3,600,105
Retained earnings 9,875,206 8,590,329
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13,603,643 12,283,874
Treasury stock (1,547,251) (1,547,251)
Receivable from shareholder (100,000) (100,000)
Unrealized gain on securities available for sale 73,777 62,957
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Total shareholders' equity 12,030,169 10,699,580
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$26,933,393 $20,395,034
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NOTE: The balance sheet at January 31, 1996 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOTAL TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
Six months ended
----------------
July 31,
--------
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,284,877 $ 659,870
Adjustment for non-cash charges 1,318,054 798,437
Changes in assets and liabilities (88,932) (326,691)
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Net cash provided by operating activities 2,513,999 1,131,616
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INVESTING ACTIVITIES:
Maturities of securities available for sale 471,400 189,059
Purchase of securities available for sale (685,141) -
Collection of notes receivable 2,135 628,792
Note receivable employee (107,156) -
Purchase of property and equipment (1,286,189) (1,350,823)
Deposits on equipment (745,000) -
Additions to deferred line installation costs (56,630) (67,641)
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Net cash used in investing activities (2,406,581) (600,613)
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FINANCING ACTIVITIES:
Exercise of stock options 34,892 -
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Net cash provided by financing activities 34,892 -
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 142,310 531,003
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,177,138 1,347,625
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,319,448 $ 1,878,628
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ - 4,909
Income taxes $ 590,000 $ 395,375
See notes to condensed consolidated financial statements.
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not
include all information and notes required by generally accepted
accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements
included in the Annual Report on Form 10-K of Total-Tel USA
Communications, Inc. and Subsidiaries (the "Company") for the fiscal
year ended January 31, 1996. In the opinion of Management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the six month period ended July 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
January 31, 1997.
Note B -- Stock Split
On July 1, l996, the Company distributed 1,463,165 shares of Common
Stock $.05 par value, in connection with a 2 for 1 stock split to record
holders as of June 15, 1996. All references in the accompanying
financial statements to the number of Common Shares and per-share
amounts have been restated to reflect the proposed stock split.
Note C -- Subsequent Event
On August 23, l996 the Registrant entered into a credit agreement
with a major New Jersey bank. This agreement provides the Registrant
with a line of credit of $10,000,000, of which $4,000,000 is unsecured
and may be used for working capital purposes and the balance of
$6,000,000 is available to finance 80% of future equipment purchases.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULT OF OPERATIONS
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Results of Operations
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Net sales were approximately $40,488,000 for the first six months of the
current fiscal year, an increase of approximately $18,352,000 or 82.9%
as compared to the first six months of the prior fiscal year. Net sales
for the second quarter of the current fiscal year were approximately
$23,118,000, an increase of approximately $11,498,000 or 99.0% compared
to the second quarter of the prior fiscal year. These increases were
attributable to intensive sales and marketing efforts by the Registrant
and an increase in wholesale revenues. However, given the competitive
climate in the long distance telephone industry, there can be no
assurance that this rate of growth will continue throughout the
remainder of fiscal year 1996.
For the current fiscal six months, the telephone service billed
approximately 286,816,000 minutes of calling as compared to
approximately 153,011,000 minutes of calling for the comparable six
months of the prior year, resulting in an increase of approximately
133,805,000 minutes or 87.4%. For the second fiscal quarter of the
current fiscal year, the Registrant billed approximately 152,636,000
minutes of calling as compared to approximately 81,510,000 minutes of
calling for the second quarter of the prior fiscal year, an increase of
71,126,000 minutes or 87.3%. The average revenue per minute decreased
in the current fiscal six month period and second quarter of the current
fiscal year as compared to the prior fiscal year's six month period and
prior fiscal year's second quarter, and was primarily attributable to
the intense price competition in the long distance telecommunications
industry and the lower per minute charge for carrier sales.
Cost of sales increased approximately $14,057,000 or 90.0% to
approximately $29,677,000 for the current six months and increased
approximately $8,870,000 or 107.9% to approximately $17,089,000 for the
second quarter of the current fiscal year. Both of these increases were
unfavorable in relation to the 82.9% increase in the sales volume for
the six month period and the 99.0% increase in the second quarter. While
the Registrant was able to continue to negotiate lower line rates from
several of its major suppliers, the gross margin for the current six
months decreased to approximately 26.7% as compared to approximately
29.4% for the first six months of the prior fiscal year, and decreased
to 26.1% from 29.3% for the second quarter of the current fiscal year
as compared to the second quarter of the prior fiscal year. These
decreases in the gross margins are reflective of the lower charge per
minute billed by the Registrant which was approximately $.003 per minute
lower for both the first six months and the second quarter of the
current fiscal year as compared to the respective periods of the prior
fiscal year and the substantial increase in wholesale revenues at
substantially lower margins.
Selling, general and administrative expense for the current six months
was approximately $8,752,000, an increase of approximately $3,216,000 or
58.1% as compared to the first six months of the prior fiscal year and
approximately $4,778,000 for the second quarter of the current fiscal
year, an increase of approximately $1,787,000 or 59.8% as compared to
the second quarter of the prior fiscal year. These increases for the six
months ended July 31, l996 as compared to the first six months of the
prior year are due primarily to increased salaries of approximately
$1,255,000, sales commissions of approximately $648,000, bad debt
expense of approximately $190,000, advertising and promotion of
approximately $269,000 and legal and consulting expense of approximately
$365,000. The increase for the second quarter of the current fiscal
year as compared to the second quarter of the prior fiscal year is due
primarily to increased salaries of approximately $689,000, sales
commissions of approximately $355,000, bad debt expense of approximately
$114,000, advertising and promotion of approximately $110,000 and legal
and consulting expense of approximately $142,000.
The decrease in interest income for the first six months of fiscal year
1997 was due to a reduction in funds invested for this period as
compared to the first six months of the fiscal year ended January 31,
l996.
Earnings per share increased to $.38 per share for the current six
months as compared to $.20 per share for the six months ended July 31,
l995, and increased to $.23 per share for the second quarter of the
current fiscal year as compared to $.09 per share for the quarter ended
July 31, l995.
Liquidity and Capital Resources
- -------------------------------
At July 31, l996, the Registrant had working capital of $4,788,944, a
decrease of $10,390 or 0.2% as compared to January 31, 1996. The ratio
of current assets to current liabilities at July 31, 1996 was 1.3:1, as
compared to a current ratio of 1.5:1 at January 31, 1996. The slight
decrease in working capital at July 31, 1996 was primarily attributable
to an increase in accounts payable of approximately $4,135,000,
salaries and wages payable of approximately $243,000, and an increase in
other current and accrued liabilities of $702,000 partially offset by an
increase in cash of approximately $142,000, an increase in accounts
receivable of approximately $4,363,000, an increase in prepaid expense
of approximately $195,000 and an increase in investments available for
sale of approximately $228,000. The Registrant has continued to maintain
a strong liquidity position.
The increase in cash of approximately $142,000 was the result primarily
of an increase in accounts payable and other current liabilities of
approximately $4,963,000, earnings of approximately $1,285,000, non cash
charges of $1,318,000, and exercise of stock options of approximately
$35,000 partially offset by an increase in accounts receivable of
approximately $4,839,000 net of provision for bad debts,, the purchase
of equipment of approximately $1,343,000 an increase in other current
assets of approximately $19,000, an increase in notes receivable from
employees of approximately $107,000, a net increase in securities
available for sale of approximately $214,000 and deposits on equipment
of approximately $745,000.
Capital expenditures during the first six months of the current fiscal
year totaled approximately $1,286,000 and were financed from funds
provided by operations. Approximately $779,000 of these expenditures
were applicable to the switching system to maintain the speed and
quality of the network. Approximately $61,000 was expended for equipment
at customers locations. In addition, approximately $321,000 was expended
for the local area network in the Little Falls, New Jersey office to
improve management information systems and operating efficiencies. The
balance of capital expenditures was for furniture and fixtures.
Capital expenditures for the balance of fiscal 1997 are estimated at
approximately $4,000,000 and are expected to be used for the following:
To provide further enhancements to the signaling and switching system,
to enhance the interconnection to the Bell Companies and other long
distance carriers and to increase switching capacity to allow for
growth; for office improvements, furniture and equipment in connection
with the expansion of the main office and sales office operation; for
new data processing equipment to complement and expand the present
system of the Registrant; improvement to the new facility located in
Belleville, New Jersey; continued development of the local network for
the new sales and administrative offices in Little Falls, New Jersey;
for additional vehicles for service technicians.
As of July 31, l996, the Registrant had a Bank line of credit of
$500,000, and no bank borrowings.
On August 23, l996 the Registrant entered into a credit agreement with a
major New Jersey bank. This agreement provides Registrant with a line
of credit of $10,000,000 of which $4,000,000 is unsecured and may be
used for working capital purposes and the balance of $6,000,000 is
available to finance 80% of future equipment purchases.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION
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THREE MONTHS ENDED JULY 31, 1996
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ITEMS 1 - 5 Not applicable
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits - none
(b) There were no reports on Form 8-K filed for the
three months ended July 31, 1996.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL-TEL USA COMMUNICATIONS, INC.
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(Registrant)
Date September 11, 1996 By /S/ Warren H. Feldman
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Warren H. Feldman, Esq.
President and Chief Executive Officer
Date September 11, 1996 By /S/ Thomas P. Gunning
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Thomas P. Gunning
Chief Financial Officer,
Secretary, Controller
and Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TOTAL-TEL USA COMMUNICATIONS, INC.
Exhibit 27 - FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF
JULY 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR SIX MONTHS ENDED JULY 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 3,319,448
<SECURITIES> 1,194,555
<RECEIVABLES> 14,560,989
<ALLOWANCES> 1,456,154
<INVENTORY> 0
<CURRENT-ASSETS> 18,691,686
<PP&E> 13,111,290
<DEPRECIATION> 5,665,260
<TOTAL-ASSETS> 26,933,393
<CURRENT-LIABILITIES> 13,902,742
<BONDS> 0
<COMMON> 93,671
0
0
<OTHER-SE> 11,936,498
<TOTAL-LIABILITY-AND-EQUITY> 26,933,393
<SALES> 40,487,602
<TOTAL-REVENUES> 40,586,029
<CGS> 29,677,300
<TOTAL-COSTS> 29,677,300
<OTHER-EXPENSES> 8,276,703
<LOSS-PROVISION> 475,749
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,156,277
<INCOME-TAX> 871,400
<INCOME-CONTINUING> 1,284,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,284,877
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
