UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, l996 .
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OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
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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, 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
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.05 par value per share
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value (based upon a $19.25 closing price) of the voting
stock held by nonaffiliates of the Registrant as of April 22, l996:
$19,160,603.
Number of shares of Common Stock outstanding on April 22, 1996:
1,463,551.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART 1
ITEM 1. BUSINESS
Total-Tel USA Communications, Inc. ( "TotalTel", the "Registrant"
or the "Company" ), a New Jersey corporation, was organized on June 8,
1959, under the name of Faradyne Electronics Corp. and adopted its
present name on November 4, l991. The Registrant's principal executive
office is located at 150 Clove Road, Little Falls, New Jersey 07424 and
its telephone number is (201) 812-1100. The Registrant operates as a
long distance telecommunications provider as more fully described
herein.
PRINCIPAL PRODUCTS AND SERVICES
Telecommunications Services
In September, l982, Registrant formed Total-Tel USA ( "TotalTel"),
as a division of its principal operating subsidiary, commenced
offering interstate telephone communication services in January, 1983
and provided the foundation for what is now the Registrant's primary
business. TotalTel operates as a resale Common Carrier providing 24
hour, 7 day a week, long distance telephone communication services to
customers nationwide. The Registrant's principal market is Northern New
Jersey and the New York Metropolitan area for direct transmission within
the contiguous United States, and to over 300 countries around the
world. The intercity circuits TotalTel utilizes to transmit its
customers' telephone calls include, among other facilities, private
lines leased from AT&T, LDDS World Com, Qwest and other usage sensitive
services leased from other competing carriers.
TotalTel offers its services primarily through its networks
consisting of a digital computerized switch in Newark, New Jersey and
intercity circuits which provide access and identification, call
routing, transmission and billing records. Subscribers are billed based
on the distance and duration of each call completed. In July, 1987,
TotalTel began offering its telecommunication services to commercial
customers in Manhattan through Total-Tel USA, Incorporated, a wholly
owned subsidiary of the Registrant. In August, l992, TotalTel extended
its telecommunications services to commercial customers in the
Southeastern United States through Total-Tel Southeast, Inc., a wholly
owned subsidiary of the Registrant.
TotalTel began offering its dedicated services and related high
usage T1.544 services in late 1985. These services were designed to
attract larger, more sophisticated business customers to the Registrant.
In April 1995, the Registrant formed TotalTel Carrier Services,
Inc. for the purpose of providing long distance service to other common
carriers in the telecommunications industry, on a wholesale basis.
TotalTel employs digital technology in its transmission lines.
Digital facilities utilize more sophisticated engineering to yield
enhanced voice quality as opposed to older analog technology. The
capital expenditure necessary to increase transmission capability
through digital technology is less than the comparable cost to expand
on an analog basis. Additionally, most of TotalTel's calling volume is
carried over fiber optic facilities leased from other carriers as
described above and from Bell Atlantic, NYNEX, other Regional Bell
Operating Companies, as well as other operating companies.
During the year ended January 31, 1996, ( "Fiscal 1996" ), as in
the Fiscal 1995, a majority of the traffic was carried through various
equal access services, also known as switch access, and are priced and
offered based on the calling volume of the particular customer. The
marketing focus is on customizing services for business customers in the
niche market now served by Registrant.
TotalTel currently has approximately 12,000 active accounts of
which approximately 95% are commercial and the balance are residential
subscribers. Sales are made primarily through advertising, direct
telephone solicitation, field sales contacts, agent sales and referrals
from present customers.
In February, 1993, the Registrant, through its wholly owned
subsidiary, TotalTel Services, Inc., commenced the sale and installation
of Panasonic telephone systems primarily in the Northern New Jersey and
New York Metropolitan area. Sales during Fiscal 1996 were not
significant.
Net sales of telecommunications services and systems in Fiscal
1996 were $49,873,477 as compared to $29,816,632 in fiscal year 1995.
TotalTel had operating income of $2,308,982 in Fiscal 1996 and operating
income of $1,553,236 in Fiscal 1995. The operating income represents
the income before interest income, interest expense, other income, other
expense, provision for income taxes and cumulative effect of change in
accounting for income taxes. For further details, see MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
elsewhere in this Report.
The continued growth in revenues in Fiscal 1996 is largely
attributable to the rapid expansion of the Registrant's agency network,
aggressive internal sales and marketing efforts. In addition, the
Registrant completed the installation of its upgraded DEX 600 switch at
its new facility in Newark, New Jersey in the second quarter of the
Fiscal 1995. The DEX 600 switch has increased transmission capabilities
significantly and the new facility allows for substantial future
expansion.
Due to TotalTel's strategic geographic location in the New York
Metropolitan Area, the Company continues to foresee benefits from the
availability of a large number of suppliers of transmission facilities
located in New York which should provide potential for improved
operating efficiency.
Competition
The most significant competitor in the telecommunications
industry, A T & T, has indicated that it intends to compete vigorously
with other common carriers (other independent telephone companies). In
the past several years, A T & T has implemented several significant rate
reductions for its long distance message services. These reductions
have required other carriers, including TotalTel, to lower their rates.
In addition, TotalTel competes with terrestrial and satellite
carriers such as MCI Communications Corporation ( "MCI" ), Sprint, LDDS
World Com, Frontier and other large companies engaged in providing
services in competition with those services offered by TotalTel.
TotalTel also directly competes with local and regional companies which
resell services, a number of which are substantially larger than
TotalTel.
More recently, a number of court decisions and the Communications Reform
Act passed by Congress in January 1996 have allowed local
exchange carriers (LECSs) to compete in the long distance
telecommunications market which should substantially increase
competition in the future.
In the opinion of Registrant's management, TotalTel's principal
methods of competition with A T & T and others have been and are
expected to continue to be pricing, customized service, quality and the
development of special billing and other niche services. TotalTel's
long distance capability and its customer services should continue to
make it competitive for most business users of A T & T, MCI and US
Sprint services.
Seasonal Nature of Business
Registrant's business is not seasonal.
Patents, Trademarks, Licenses, etc.
Registrant does not hold any material patents, franchises or
concessions and holds one license from Aerotel USA for the right to use
calling card technology on which Aerotel USA holds a U S Patent.
Royalty payments will be based on net revenues.
Government Regulations
In August, l982, the Federal Communications Commission ( "FCC" )
substantially deregulated resale common carriers, such as the
Registrant. The FCC no longer requires certification of such carriers
to initiate business activities nor does it exercise its authority to
regulate their rates and services, although it has the power to do so in
the future, The FCC may act upon complaints against the Registrant or any
other common carrier for failure to comply with its statutory obligations
as a common carrier. Registrant is duly tariffed with the FCC as a
switched lease carrier.
In 1995 the FCC discontinued regulating the rates and services of
A T & T, determining that A T & T is a non dominant carrier. This
determination may affect the Registrant because it competes with A T &
T, utilizes A T & T lines to transmit some of its long distance traffic
and leases local access transmission facilities from local telephone
companies which are FCC regulated. The FCC currently prohibits carriers
such as A T & T from refusing to permit resale of their services.
Services in New York City are regulated by the New York State
Public Service Commission, which requires the filing of a tariff, among
other requirements. TotalTel has received approval of its tariff and
continues to maintain its tariff in full force and effect. TotalTel
Southeast, Inc. is regulated by Georgia Public Service Commission which
requires the filing of a tariff. TotalTel Southeast, Inc. has received
approval of its tariff and continues to maintain its tariff in full
force and effect.
During Fiscal 1996, the Registrant was registered in 49 states, in
respect to service within those states, and is thus subject
to the regulatory requirements of the various Public Service Commissions
or similar agencies of these states.
Beginning in April, 1988, TotalTel provided its domestic customers
international phone service to numerous foreign countries.
International services are regulated by the FCC which requires a license
and the filing of a tariff. Total-Tel's license has been granted and
its tariff has been approved.
Compliance with Environmental Provisions
Registrant believes that it complies in all material respects with
current pertinent Federal, state, and local provisions relating to the
protection of the environment and does not believe that continued
compliance should require any material capital expenditures.
Personnel
Registrant and its subsidiaries currently employ 180 full-time
employees in its long distance telecommunication service, of whom 35 are
engaged in sales activities, 15 in customer support, 24 in customer
service, 29 in technical and field services, 12 in data processing, and
65 in general and administrative activities. The Registrant considers
its relations with its employees to be excellent.
Foreign Operations and Export Sales
Registrant has no significant foreign operations or export sales.
ITEM 2. PROPERTIES
On November 15, l993 and December 28, l993 Total-Tel USA, Inc., a
subsidiary of the Registrant, entered into leases to rent an aggregate
of approximately 3,500 square feet of space at 744 Broad Street, Newark,
New Jersey for its upgraded switching equipment. The leases run from
January 1, l994 through December 31, 1998 at an annual rental of $51,480
and also require the tenant to pay proportionate share of any increases
in the "Consumer Price Index", U. S. City Average, over the base year.
On December 1, l993, Total-Tel USA, Inc. a subsidiary of the
Registrant, entered into a five year lease to rent approximately 20,000
square feet of space from a partnership in which two of the partners are
directors and major shareholders of the Company. The lease provides for
annual rentals of $58,560 for the first three years and $63,885 for
years four and five. This space is used for warehousing and office
space for the technical support employees. The lease requires the
payment of any increase in operating expenses and real estate taxes over
the base year.
On February 22, l994, Total-Tel USA Inc., a subsidiary of the
Registrant, entered into a lease, subsequently modified on April 15,
l994, for approximately 17,700 square feet of space at 150 Clove Road,
Little Falls, New Jersey to be used as its sales, executive and
administrative offices. The lease provided for a rent holiday until
July, 1995 after which the annual rental is approximately $360,000. The
lease is for five years and ten months and has been amended by a second
lease modification agreement dated February 9, l995 whereby the
Registrant leased approximately 6,700 additional square feet of space
at the same location at an additional annual rental of $121,707 for the
first four years and $138,154 for the next year and two months. The
modified agreement also extended the term of the existing lease for an
additional two years to August 14, 2002 at a then annual rental of
$563,063. The lease requires the payment of the tenant's proportionate
share of operating expenses and real estate tax increases over the base
year.
All leases contain options to renew for various periods at
rentals to be determined by the then prevailing fair market rate of real
estate rents in the area.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Registrant brought suit in Civil Court of the City of New
York, County of New York against a customer, Community Network Services,
Inc. d/b/a Telecommunity, for the recovery of an account receivable of
$37,917 plus interest, attorneys fees and damages. Defendant has
counter sued Registrant in the Supreme Court of the State of New York,
County of New York alleging breach of contract and seeks compensatory
and punitive damages of $1,300,000. The Registrant believes the suit is
entirely without merit and is vigorously defending this action.
In a second action Telecommunications Specialists, Inc., a former
customer of the Registrant, brought suit in the United States District
Court for the District of Minnesota alleging breach of contract and is
seeking compensatory and punitive damages in excess of $14,000,000.
The Registrant believes that this suit is entirely without merit and is
vigorously defending this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) Registrant's Common Stock is traded in the over-the-
counter market on the NASDAQ National Market System. The following
table sets forth, for the quarterly fiscal periods indicated, the high
and low closing sales prices for Registrant's Common Stock in such
market, as reported by the National Association of Securities Dealers,
Inc.
FISCAL 1996 HIGH LOW
February 1 thru April 30 18 3/4 15 1/4
May 1 thru July 31 20 17
August 1 thru October 31 23 16 1/2
November 1 thru January 31,1996 24 1/2 17
FISCAL 1995
February 1 thru April 30 21 1/2 13 3/4
May 1 thru July 31 22 14 7/8
August 1 thru October 31 17 3/4 14 13/16
November 1 thru January 31, l995 18 1/4 15 1/2
(b) As of April 22, l996, the approximate number of
recordholders of Registrant's Common Stock was 313, as reported by
Registrant's transfer agent.
(c) Registrant has not paid or declared any cash dividends
during the past two fiscal years and does not anticipate paying any in
the foreseeable future.
(d) On July 15, l994, the Registrant distributed 131,795 shares
of Common Stock in connection with a 10% stock dividend on all shares
outstanding as of June 30, l994.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands except per share amounts)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, .
RESULTS OF OPERATIONS: 1996 1995 1994 1993 1992
-----------------------------------------------------------------------
Net sales $ 49,873 $ 29,817 $ 18,999 $ 11,736 $ 12,041
Earnings from
continuing operations $ 1,555 $ 1,100 $ 1,052 $ 9 $ 309
Net earnings $ 1,555 $ 1,100 $ 1,156 $ 9 $ 322
Earnings Per Common and Common Equivalent Shares (b):
Primary:
Continuing Operations
Before Cumulative Effect
Of Accounting Change $ 0.95 $ 0.68 $ 0.67 $ 0.01 $ 0.17
Discontinued Operations $ -- $ -- $ -- $ -- $ 0.01
Accounting Change $ -- $ -- $ 0.07 $ -- $ --
Net earnings per share $ 0.95 $ 0.68 $ 0.74 $ 0.01 $ 0.18
Fully Diluted:
Continuing Operations
Before Cumulative Effect
Of Accounting Change $ 0.95 $ 0.68 $ 0.64 $ 0.01 $ 0.17
Discontinued Operations $ -- $ -- $ -- $ -- $ 0.01
Accounting Change $ -- $ -- $ 0.07 $ -- $ --
Net earnings per share $ 0.95 $ 0.68 $ 0.71 $ 0.01 $ 0.18
Average common shares
outstanding (a) (b)
Primary 1,642 1,629 1,579 1,499 1,799
Fully Diluted 1,642 1,629 1,634 1,499 1,799
Cash dividends per
common share NONE NONE NONE NONE NONE
Additions to property
& equipment $ 3,028 $ 2,268 $ 1,375 $ 721 $ 82
Depreciation and
amortization $ 1,026 $ 663 $ 492 $ 458 $ 424
FINANCIAL POSITION:
Working Capital $ 4,799 $ 5,031 $ 4,683 $ 4,717 $ 6,205
Property and equipment - net $ 6,011 $ 3,924 $ 2,236 $ 1,272 $ 920
Total assets $ 20,520 $ 15,110 $ 11,071 $ 9,044 $ 10,104
Long-term debt $ -- $ -- $ -- $ -- $ 58
Shareholders' Equity $ 10,700 $ 9,093 $ 7,917 $ 6,860 $ 8,067
Common shares
outstanding (a) (b) 1,464 1,450 1,438 1,438 1,739
</TABLE>
(a) In February and July, 1992, the Registrant purchased
224,250 and 50,000 shares, respectively, of its Common
Stock which were designated to treasury stock. In December,
1991, the Registrant purchased 65,442 shares of its Common
Stock which were designated to treasury stock.
(b) All per share amounts have been restated to reflect
the 10% Common Stock dividend distributed July 15, l994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1996 as Compared to Fiscal 1995
The following discussion of the results of operations relates to
the continuing operations of the Registrant, which is comprised of the
long distance telephone service business.
Net sales for Fiscal 1996 increased approximately $20,056,000 as
compared to Fiscal 1995. The increase in telephone sales volume of
approximately 67.3% was primarily due to intensive sales and marketing
by the Registrant.
For Fiscal 1996, the Registrant billed approximately 365,878,000
minutes of calls as compared to approximately 204,631,000 minutes of
calls in the prior fiscal year, resulting in an increase of
approximately 161,247,000 minutes or 78.8% as compared to the prior
fiscal year. This increase was unfavorable in relation to the 67.3%
increase in sales volume for the period and was indicative of the lower
cost per minute billed due to substantial competitive pressure.
The major component of cost of sales is leased facilities or line
costs which is the purchased transmission capacity over which the
Registrant routes its long distance traffic. Line costs for Fiscal 1996
were $32,442,000 an increase of $13,335,000 or 69.9% which was slightly
unfavorable as compared to the increase in sales of approximately 67.3%.
The other components are switch and technician salaries, utilities, rent
and depreciation which totaled $2,413,000 for Fiscal year 1996 an
increase of $666,000 or 38.1%. The increase in
cost of sales was attributable to the increased sales of the Registrant.
Gross margin increased slightly in Fiscal 1996 to 30.12% from 30.06% in
Fiscal 1995.
Selling, general and administrative expenses increased
approximately $5,299,000 or 71.5% for fiscal year 1996 as compared to
the prior fiscal year. The increase was primarily due to increased
salaries expense of $1,774,000 or 58.4%, increased commissions of
$1,432,000 or 75.1% and increased provision for bad debts of $428,000 or
109.2%. The substantial increase in commissions and provision for bad
debts is a reflection of the aggressive pursuit of new business in a
highly competitive market.
The increase in interest income for the Fiscal 1996 was primarily
due to increased interest rates.
Fiscal 1995 as Compared to Fiscal 1994
The following discussion of the results of operations relates to
the continuing operations of the Registrant.
Net sales for Fiscal 1995 increased approximately $10,817,000 as
compared to Fiscal 1994. The increase in telephone sales volume of
approximately 56.9% was primarily due to intensive sales and marketing
by the Registrant, both internally and through expanded agency sales
partially offset by lower prices.
For Fiscal 1995, the Registrant billed approximately 204,631,000
minutes of calls as compared to approximately 114,947,000 minutes of
calls for the prior fiscal year, an increase of approximately 89,684,000
minutes or 78%.
Cost of sales for Fiscal 1995 increased approximately $7,941,000
or 61.5% as compared to the prior fiscal year. This increase was
unfavorable in relation to the 56.9% increase in sales volume for the
period and is a reflection of the competitive pricing pressures in the
industry.
Line costs for Fiscal 1995 were $19,107,368, an increase of
$7,334,301 or 62.3% over the prior year. The other components are
switch and field technician salaries, utilities, rent and depreciation
which totaled $1,745,272 for Fiscal 1995, an increase of $663,316 or
61.3%. The increase in cost of sales was attributable primarily to the
substantially increased sales of the Company. The higher proportionate
cost of sales was attributable to lower selling price per minute, even
though vendors continued to lower their prices to the Registrant. These
factors caused a decrease in the gross margin of approximately 2% to
approximately 30% for Fiscal 1995.
Selling, general and administrative expenses increased
approximately $2,767,000 or 60% for Fiscal 1995 as compared to the prior
fiscal year. The increase was primarily due to increased salaries of
$928,691 or 48.7%, increased commissions of $917,602 or 91.4% and an
increased provision for bad debts of $159,724 or 68.9%. The continued
substantial increase in commission is attributable to the aggressive
pursuit of new business in a highly competitive market.
Interest income for Fiscal 1995 decreased approximately $31,000 as
compared to Fiscal 1994 primarily due to a reductions in the funds
available for investment.
Liquidity and Capital Resources
At January 31, l996, the Registrant had working capital of
$4,799,334 as compared to $5,031,400 at January 31, l995, a decrease of
$232,066. The ratio of current assets to current liabilities at January
31, 1996 was 1.5:1 and at January 31, 1995 was 1.9:1. This slight
decrease in working capital at January 31, l996 was attributable
primarily to an increase in cash and cash equivalents of $1,829,513 and
accounts receivable of $2,802,284 (net of doubtful accounts) partially
offset by the collection of notes receivable of $538,345 and accrued
interest receivable of $80,074, a decrease in investments available for
sale of $956,489, an increase in accounts payable of $2,483,618 and an
increase in other current and accrued liabilities and salaries and wages
payable of $821,229.
The decrease in the current ratio from 1.9:1 to 1.5:1 is primarily
due to the purchase of property and equipment during Fiscal Year 1996 in
the amount of $3,027,719. While the decrease in the current ratio may
be considered material, the Registrant continues to maintain a strong
liquid position with cash and cash equivalents and investments available
for sale of $4,144,073 representing 47.0% of current liabilities. The
Registrant believes that its current cash position, projected operating
revenue and bank line availability should be sufficient to meet its
foreseeable operating needs and planned capital expenditures.
The cash flow statement of the Registrant for Fiscal 1996
indicated an increase in cash of $1,829,513. Net earnings of $1,554,589
and non cash adjustments of $2,054,848 reduced by net changes in assets
and liabilities of $223,077 provided cash from operations of $3,386,360.
Cash used in investing activities totaled $1,573,264. The major
components were purchases of property and equipment of $3,027,719 and
additions to line installation cost of $111,283, net maturities of
available for sale securities of $1,600,963, collection of notes
receivable of $628,792 and issuance of notes to shareholder net of
repayment of $82,500. Cash provided by investing activities totaled
$16,417 and was the result of the exercise of stock options.
Capital Expenditures
Capital expenditures during Fiscal 1996 totaled approximately
$3,028,000 and were financed from funds provided from Registrant's
working capital and cash derived from operations. The capital
expenditures were used to purchase the following equipment and leasehold
improvements:
$1,672,000 - to upgrade and provide further enhancement to
the signaling and switching system, to enhance the
distance carriers and to increase switching capacity
to allow for future growth.
$ 999,000 - primary data processing equipment and data processing
software to be used in the headquarters' local area
network and enhancement to the Registrant's billing
and information systems.
$ 288,000 - furniture and fixtures for the general offices located
in Little Falls, New Jersey and the switch facility in
Newark, New Jersey.
$ 69,000 - for leasehold improvements primarily for the facility
in Belleville, New Jersey.
Capital expenditures for Fiscal 1997 are estimated at
approximately $3,500,000 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 area network
for the new sales and administrative offices in Little Falls,
New Jersey; for additional vehicles for service technicians.
The Registrant anticipates that capital expenditures for Fiscal
1997 will be funded from operations and current working capital and,
possibly, long term borrowings for which no commitment currently exists.
As of January 31, l996, the Registrant had a bank line of credit
of $500,000. During Fiscal 1996 Registrant had no bank borrowings.
Inflation
Since inflation has slowed in recent years, the Registrant does
not believe that its business has been materially affected by the
relatively modest rate of price increases in the economy. The
Registrant continues to seek improvements in operations and efficiency
through capital expenditures. The planned expenditures to improve the
signaling system, information systems and the local area network is
expected to result in future operating costs savings which could
partially offset any cost increases which may occur in the future.
Environmental Matters
The Registrant is not a party to any legal proceedings or the
subject of any claim regarding environmental matters generally
incidental to its business. In the opinion of Management, compliance
with the present environmental protection laws should not have a
material adverse effect on the financial condition of the Registrant.
Accounting for Income Taxes
The Registrant adopted the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ( "SFAS No.109" ), in
the first quarter of Fiscal 1994. This implementation
increased net earnings for Fiscal 1994 by $104,000 or $.07 per share.
Accounting for Certain Investments in Debt and Equity Securities
In May, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ( "SFAS No. 115" )
which is effective for fiscal years beginning after December 15, 1993.
The Registrant adopted SFAS No. 115 in the first quarter of Fiscal 1995,
which adoption had no significant effect on the Registrant's financial
position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are included under
Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Registrant are as follows:
Name Age Position
Marc Balmuth 48 Director
Solomon Feldman 75 Treasurer and Director
Warren H. Feldman 40 Chairman, Chief Executive
Officer and Director
Thomas P. Gunning 58 Chief Financial Officer,
Controller and Secretary
Jay J. Miller 63 Director
Jerold L. Zaro 44 Director
The Registrant's directors all serve for one year terms or until
their successors are elected and qualify. Officers serve at the
pleasure of the Board of Directors.
Mr. Marc Balmuth was elected as a Director of the Registrant, in
May, 1993. Mr. Balmuth is currently the President of the Caldor discount
department store chain and has held that position since early 1987.
From 1985 to 1987, Mr. Balmuth was Executive Vice President of Venture
discount chain of St. Louis, Missouri. Prior to joining Venture, Mr.
Balmuth held various executive positions in the retail industry. Mr.
Balmuth is the son-in-law of Manual Brucker, a former officer and
director of the Registrant and a major shareholder of the Registrant.
Mr. Solomon Feldman has served as the Treasurer and as a Director
of the Registrant continuously since its inception in 1959. Mr. Feldman
is currently a private investor and devotes approximately 25% of his
time to the business of the Company.
Warren H. Feldman, Esq. was elected President and Chief Executive
Officer of the Registrant in September, 1992 and was elected Chairman of
the Board in September, 1994. Prior to such time, he served as Vice
President - Regulatory Affairs of Registrant since January, 1986, and
had been the General Manager of Total-Tel USA Division and in-house
General Counsel of Registrant since 1984. He was elected a Director on
April 1, l987 and President of Total-Tel USA Division on October 27,
l988. Warren H. Feldman is the son of Solomon Feldman.
Thomas P. Gunning was appointed Chief Financial Officer in
September, 1994 and Secretary of the Registrant in January, 1995. He
has served as Controller of the Registrant since September 1992. He is
a Certified Public Accountant licensed by the State of New York and New
Jersey. From 1989 until joining the Registrant, Mr. Gunning was the
Senior Audit Manager at Rosenberg Selsman & Company a certified public
accounting firm. From 1976 to 1989, he was Chief Financial Officer of
Flyfaire, Incorporated a travel wholesale operator. Prior to such time,
Mr. Gunning held various positions in both public and private
accounting.
Jay J. Miller, Esq. has been a practicing attorney for more than
thirty years in the State of New York. Mr. Miller is a Director of
Vestro Natural Foods, Inc., a specialty food firm, and Edison Control
Corporation, a manufacturer of electronic fault indicators for the power
utility industry. He also is a director of Gulf Resource Pacific Ltd.,
a New Zealand real estate company.
Jerold L. Zaro, Esq. was elected a Director of Registrant in
August, 1991. Mr. Zaro joined the firm of Ansell, Zaro, Bennett and
Grimm, a law firm engaged in the general practice of law in Eatontown,
New Jersey in 1976 and has been its President since 1985. Mr. Zaro is
Director of First Dewitt Bank, a New Jersey State chartered banking
institution. Mr. Zaro is also a Commissioner of the New Jersey Highway
Authority, which owns, operates and maintains the Garden State Parkway
and the Garden State Arts Center.
SIGNIFICANT EMPLOYEE
Kevin A. Alward, President and Chief Operating Officer of
TotalTel, the principal operating subsidiary of Registrant, joined
Registrant in October, 1988, as a sales account executive. Mr. Alward
became Manager of Sales in November, l990 and Vice President of
Marketing in 1991. In February, 1992, Mr. Alward was promoted to Senior
Vice President and assumed the additional responsibilities of Chief
Operating Officer in April, l993. In 1994, Mr. Alward was promoted to
President of TotalTel, Inc., the principal operating subsidiary of the
Registrant.
ITEM 11. EXECUTIVE COMPENSATION
a) The following table sets forth the compensation which the
Registrant paid during the fiscal years ended January 31, l996, 1995,
1994 to the Chief Executive, each Executive Officer of the Registrant
and the President of its principal operating subsidiary whose aggregate
remuneration exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Fiscal Year Annual Compensation Other Compensation
Principal Ended Annual Awards All Other
Position January 31 Salary ($) Bonus(s) Compensation($) Options (#) Compensations(s)
<S> <C> <C> <C> <C> <C>.
Warren H. 1996 $195,000 (1) $274,241 $4,667 (4)
Feldman 1995 $195,103 (1) $ 74,153 15,000 (2) $4,583 (5)
President and 1994 $149,651 (1) $ 63,746 19,250 (3) $4,167 (6)
Chief Executive
Officer
Kevin Alward 1996 $195,000 $274,241 $6,010 (9)
President of 1995 $195,000 $ 63,700 31,500 (7)(8) $5,256 (10)
TotalTel, Inc.
</TABLE>
(1) Does not include an annual Director's fee of $15,000.
(2) Represents incentive options to purchase 15,000 shares of
Common Stock exercisable at a price of $19.25 per share (110% of the
market price at the date of issue). These options vest over a period of
forty-eight (48) months, with 25% of each option exercisable at
the 12th, 24th, 36th, and 48th month of its term, subject to earlier
vesting in certain circumstances as provided in the option agreement.
(3) Represents incentive options to purchase 19,250 shares of
Common Stock exercisable at a price of $5.40 per share adjusted for the
10% stock dividend issued July 15, 1994. These options vest over a
period of thirty-six (36) months, with 25% of each option exercisable
at the 6th, 12th, 24th, and 36th month of its term, subject to earlier
vesting in certain circumstances as provided in the option agreement.
(4) The amounts shown represent the Registrant's contribution under
its 401 (K) Deferred Compensation and Retirement Savings Plan of
$2,310 and $2,357 for the use of a company vehicle for non business
purposes.
(5) The amount shown represents the Registrant's contribution under
its 401 (K) Deferred Compensation and Retirement Savings Plan of
$2,226 and $2,357 for the use of a company vehicle for non business
purposes.
(6) The amounts shown represents the Registrant's contribution under
its 401 (K) Deferred Compensation and Retirement Savings Plan of
$1,810 and $2,357 for the use of a company vehicle for non business
purposes.
(7) Represents incentive options to purchase 16,500 shares of Common
Stock exercisable at a price of $14.55 per share, adjusted for the 10%
stock dividend issued in July 1994. These options vest over a period
of thirty-six (36) months with 25% of each option exercisable at the
8th, 12th, 24th, and 36th month of its term, subject to earlier
vesting in certain circumstances as provided in the option agreement.
(8) Represents incentive options to purchase 15,000 shares of Common
Stock exercisable at a price of $17.50 per share. These options vest
over a period of forty-eight (48) months with 25% of each option
exercisable at the 12th, 24th, 36th, and 48th month of its term, subject
to earlier vesting in certain circumstances as provided in the option
agreement.
(9) The amounts shown represent the Registrant's contribution under
its 401 (K) Deferred Compensation and Retirement Savings Plan of
$2,310 and $2,643 for the use of a company vehicle for non business
purposes and $1,057 term life insurance premiums.
(10) The amount shown represents the Registrant's contribution under
its 401 (K) Deferred Compensation and Retirement Savings Plan of
$1,556 and $2,643 for the use of a company vehicle for non business
purposes and $1,057 term life insurance premiums.
(b) Compensation Pursuant to Plans
1987 Stock Option Plan
In October, 1987, the Registrant adopted its 1987 Stock Option
Plan (the " Plan " ). The Plan provides that certain options granted
thereunder are intended to qualify as "incentive stock options" within
the meaning of Section 422A of the United States Internal Revenue
Code of 1954, as amended (the " Code " ), while non-qualified options
may also be granted under the Plan. Incentive stock options may be
granted only to employees of the Registrant, while non-qualified
options may be granted to non-executive directors, consultants and
others as well as to employees.
The Plan is administered by a Committee of the Registrant's Board
of Directors. The Registrant has reserved 332,450 shares of Common
Stock for issuance to employees, officers, directors and consultants of
the Company. The shares for options granted prior to July 15, l994 have
been adjusted for the 10% stock dividend.
No option may be transferred by an optionee other than by will or
the laws of desent and distribution, and during the lifetime of an
optionee, an option may be exercised only by him. In the event of
termination of employment other than by death or disability, the
optionee will have one month (subject to extension not to exceed an
additional two months) after such termination during which he may
exercise his option. Upon termination of employment of an optionee by
reason of death or permanent total disability, his option remains
exercisable for one year thereafter to the extent it was exercisable on
the date of such termination. No similar limitation applies to non-
qualified options.
Options under the Plan must be granted within ten years from the
effective date of the Plan. Incentive stock options granted under the
Plan cannot be exercised later than ten years from the date of grant.
Options granted under the Plan will permit payment of the exercise price
in cash or by delivery to the Registrant of shares of Common Stock
already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of
such methods of payment. Therefore, an optionee may be able to tender
shares of Common Stock to purchase additional shares of Common Stock and
may theoretically exercise all of his stock options with no additional
investment other than his original shares.
Any options that expire unexercised or that terminate upon an
employee's ceasing to be employed by the Registrant become available
once again for issuance under the Plan.
OPTIONS GRANTS IN LAST FISCAL YEAR
NONE
(C) Other Compensation
None.
(d) Compensation of Directors
Each director of the Registrant receives $15,000 per year for
services in such capacity.
(e) Termination of Employment and Change of Control Arrangements
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are
know by Registrant to own beneficially more than 5% of any class of the
Registrant's voting shares on April 22, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Amount and
Title Address of Nature of Percentage
of Beneficial Beneficial of
Class Owner Ownership (1) Class
Common Manuel Brucker 129,983 7.7 %
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
Common Solomon Feldman 239,095 14.2 %
Stock $.05 1890 South Ocean Drive shares
par value Hallandale, FL 33009
Common Warren H. Feldman 290,100 (2) 17.2 %
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
Common Michael A. Karp 109,670 6.5 %
Stock $.05 3416 Sansom Street shares
par value Philadelphia, PA 19104
Common Heartland Advisors, Inc. 256,500 15.2%
Stock $.05 790 North Milwaukee St. shares
par value Milwaukee, WI 53202
Common Kevin Alward 141,750 (3) 8.4 %
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
</TABLE>
(1) All shares are beneficially owned and sole investment and voting
power is held by the persons named to the best of the Registrant's
knowledge.
(2) Includes options to purchase 100,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(3) Included options to purchase 125,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(b) Security Ownership of Management
The following table sets forth as of April 22, 1996 information
concerning the beneficial ownership of each class of equity securities
by each director of the Registrant and all directors and officers of the
Registrant as a group:
Name and Amount and
Title Address of Nature of Percentage
of Beneficial Beneficial of
Class Owner . Ownership (1) Class .
Common Solomon Feldman 239,095 14.1%
Stock $.05 1890 South Ocean Drive shares
par value Hallandale, FL 33009
Common Warren H. Feldman 290,100(2) 17.1%
Stock $.05 150 Clove Road shares
par value Little Falls, NJ 07424
Common Jay J. Miller --- ---
Stock $.05
value
Common Jerold L. Zaro 11,000 .6%
Stock $.05 shares
value
Common Kevin Alward 141,750(3) 8.3%
Stock $.05 shares
value
Common All directors 693,195(2)(3) 40.8%
Stock $.05 and officers as a shares
par value group (6 in number)
(1) All shares are beneficially owned and sole investment and voting
power is held by the persons named.
(2) Includes options to purchase 100,000 shares of the Registrant's
Common Stock which are currently exercisable or within 60 days hereof.
(3) Includes options to purchase 125,000 shares of the Registrant's
Common Stock which are currently excercisable or within 60 days
hereof.
(c) Changes in Control
The Registrant knows of no contractual arrangement which may, at a
subsequent date, result in a change in control of the Registrant.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, l993, the Company leased warehouse space in
Belleville, New Jersey from a partnership in which two directors and
major shareholders are a partner and a former director and a major
shareholder is also a partner. During the fiscal year ended January 31,
l996, the Company paid rent of $59,760 to the partnership. The annual
rent for this premise is $58,560 for the first three years and $63,885
for years four and five.
As explained more fully in Note K to the Financial Statements the
Registrant has from time to time made loans to an executive employee and
shareholder of the Registrant.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
TOTALTEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULE
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
INDEX
(a) (1) FINANCIAL STATEMENTS: The following consolidated
financial statements of Total-Tel USA Communications, Inc. and
subsidiaries are included at the end of this Report:
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Independent auditors' report F-1
Consolidated balance sheets - January 31, l996
and 1995 F-2
Consolidated statements of earnings - years
ended January 31, 1996, 1995 and 1994 F-3
Consolidated statements of shareholder's equity -
years ended January 31, 1996, 1995, 1994 F-4
Consolidated statements of cash flow - years
ended January 31, l996, 1995, 1994 F-5
Notes to consolidated financial statements F-7
(a) (2) SUPPLEMENTARY DATA FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K:
Schedule - years ended January 31, l996, l995
and 1994.
II Valuation and Qualifying Accounts (Consolidated) F-13
***************
Schedules other than those listed above are omitted because they are not
required, not applicable or the information has been otherwise supplied.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on
the 22nd day of April, 1996.
TOTAL-TEL USA COMMUNICATIONS, INC.
(Registrant)
By: /S/ Warren H. Feldman
----------------
Warren H. Feldman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ Marc Balmuth Director April 22, l996
----------
Marc Balmuth
/S/ Solomon Feldman Treasurer and Director April 22, l996
----------
Solomon Feldman
/S/ Warren H. Feldman Chairman of the Board, April 22, l996
--------- Chief Executive Officer
Warren H. Feldman and Director
/S/ Thomas P. Gunning Chief Financial Officer April 22, l996
-------- Secretary, Controller and
Thomas P. Gunning Principal Accounting Officer
/S/ Jay J. Miller Director April 22, l996
------------
Jay J. Miller
/S/ Jerold L. Zaro Director April 22, l996
----------
Jerold L. Zaro
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
(3) (a) Certificate of Incorporation, as amended.
Incorporated by reference to Exhibits 2-A, 2-B, 2-C and 2-D to
Registration Statement No. 2-15546 and Registrant's proxy
statement relating to its 1987 Annual Stockholder's Meeting.
(3) (b) By-Laws of Registrant. Incorporated by reference
to Exhibit A to Registrant's Annual
Report on Form 10-K for the year ended January 31, 1972.
(3) (c) Amended Certificate of Incorporation to change
the name of the Corporation from Faradyne Electronics Corp.
to Total-Tel USA Communications, Inc., dated November 4, l991.
Incorporated by reference to Exhibit 3 (c) to Registrant's
Annual Report on Form 10-K for the year ended January 31, l992.
(10)(a) Lease of premises at 140 Little Street,
Belleville, New Jersey, between Mansol Realty Company and Mansol
Ceramics Company, dated March 30, 1960. Incorporated by reference
to Exhibit 13 (e) to Registration Statement No. 2-17546.
(10)(a) (1) Assignment of lease from Mansol Realty Company to Mansol
Realty Associates. Incorporated by reference to Exhibit
10 (a) (1) to Registrant's Annual Report on Form 10-K
for the year
ended January 31, l982.
(10)(b) Extension Agreement re: Lease of premises at 140
Little Street dated October 31, l974. Incorporated by reference
to Exhibit 10 (b) to Registrant's Annual Report on Form 10-K
for the year ended January 31, l981.
(10)(c) Lease of premises at 471 Cortland Street,
Belleville, New Jersey, between Birnfield Associates and
Mansol Ceramics Company, dated October 31, 1974. Incorporated by
reference to Exhibit 10 (c) to Registrant's Annual Report
on Form 10-K for the year ended January 31, 1981.
(10)(d) Lease Modification Agreement re: Lease of
premises at 471 Cortland Street dated July 24, 1980. Incorporated by
reference to Exhibit 10 (d) to Registrant's Annual Report on
Form 10-K for the year ended January 31, 1981.
(10)(e) (i) Term Loan Agreement and Term Note both dated April 22,
l983 between Mansol Ceramics Company and United Jersey
Bank in the principal amount of $1,192,320. Incorporated by
reference to Exhibit 10 (e) to Registrants Annual Report
on Form 10-K for the year ended January 31, l983.
(10)(e) (ii) Installment Note and Equipment Loan and Security
Agreement of Mansol Ceramics Company and Guaranty of
Registrant, dated August 1, l988, in connection with
extension of the maturity date of the loan referenced
to in Exhibit 10 (e) (i).
(10)(f) Lease of premises at 17-25 Academy Street,
Newark, New Jersey between Mansol Ceramics Company and
Rachlin & Co., dated April 29, l983. Incorporated by reference
to Exhibit 10 (f) to Registrant's Annual Report on Form
10-K for the year ended January 31, l984.
(10)(g) Lease Modification Agreement re: Lease of
Premises at 471 Cortland Street dated July 24, l985. Incorporated by
reference to Exhibit 10 (g) to Registrant's Annual Report
on Form 10-K for the year ended January 31, l986.
(10)(h) Master Lease Agreement between Mansol Ceramics
Company and Fidelcor Services, Inc. dated December 30,
l985. Incorporated by reference to Exhibit 10 (h) to
Registrant's Annual Report on Form 10-K for the year
ended January 31, l986.
25
Exhibit No. Description of Document
- ----------- -----------------------
(10)(i) Deed, Mortgage and Mortgage Note between William
and Fred Schneper as Grantees and Borrowers and Mansol
Ceramics Company as Grantor and Lender, dated July 26,
l985 re: property located in Hanover Township, New Jersey.
Incorporated by reference 10 (i) to Registrant's Annual
Report on Form 10-K for the year ended January 31, l986.
(10)(j) Lease of premises at 140 Little Street,
Belleville, New Jersey, between Mansol Realty
Association and Mansol Ceramics Company, dated July 31, 1986.
Incorporated by reference to Exhibit 10 (j) to Registrant's
Annual Report on Form 10-K for the year ended January 31, l987.
(10)(k) 1987 Stock Option Plan. Incorporated by
reference to Registrant's proxy statement relating to its
1987 Annual Stockholders' Meeting.
(10)(k)(1) Amendment to the 1987 Stock Option Plan. Incorporated
by reference to Registrant's Form S-8 dated November 13, l995.
(10)(l) Renewal of Lease and Extension to additional
space at 17-25 Academy Street, Newark, New Jersey (a/k/a 1212
Raymond Boulevard, Newark, New Jersey) between Mansol
Ceramics Company and Rachlin & Co. Incorporated by reference
to Exhibit 10 (l) to Registrant's Annual Report on Form 10-K
for the year ended January 31, l988. (See also Exhibit 10 (f)).
(10)(m) Agreement, dated June 13, 1989, between Mansol
Ceramics Company and Bar-lo Carbon Products, Inc. providing
for the sale of Ceramics' Carbon fixtures division.
Incorporated by reference to Exhibit 10 (m) to Registrant's
Annual Report on Form 10-k for the year ended January 31, 1990.
(10)(n) Modification of Note and Mortgage from William Schneper,
Fred Schneper and Leon Schneper (Mortgagor) to
Mansol Ceramics Company (Mortgagee) dated August 1, l990,
extending the term of the Note and Mortgage and modifying
the interest provision.
(10)(o) Asset Purchase Agreement between Registrant, Mansol Ceramics
Company and Mansol Industries Inc. dated May 22, l990, including
Subordinated Term Promissory Note and Security Agreement,
covering sale of assets and business of Manufacturing Division of
Mansol Ceramics Company. Incorporated by reference to Exhibits
1, 2 and 3 to Registrant's Current Report on Form 8-K dated
May 22, l990.
(10)(p) Modification of Loan between Mansol Industries,
Inc. (borrower) and Mansol Ceramics
Company (Lender) dated January 31, 1992, allowing for the
deferral of the principal for twelve months through and
including the period ending June 22, l992 in consideration for
personal guarantees from Borrower. Incorporated by reference
to Exhibit 10 (p) to Registrant's Annual Report on Form
10-K for the year ended January 31, 1992.
(10)(q) Lease of premises at 470 Colfax Avenue, Clifton, New Jersey,
between Total-Tel USA Communications, Inc. and Broadway
Financial Investment Services, Inc. dated March 25, 1991.
Incorporated by reference to Exhibit 10 (q) to Registrant's
Annual Report on Form 10-K for the year ended January 31, l992.
(10)(r) Lease of premises at 744 Broad Street, Newark,
New Jersey between Total-Tel USA Inc. and Investment Property
Services, Inc. dated November 15, 1993. Incorporated by reference
to Exhibit 10 (r) to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1994.
(10)(s) Lease of premises at 744 Broad Street, Newark,
New Jersey between Total-Tel USA, Inc. and Investment Property
Services, Inc. dated December 28, 1993. Incorporated by reference
to Exhibit 10 (s) to the Registrant's Annual Report on Form 10-K for
the year ended January 31, l994.
26
Exhibit No. Description of Document
- ----------- -----------------------
(10)(t) Lease of premises at 471 Cortland Street,
Belleville, New Jersey, between Total-Tel USA Inc. and
Birnfield Associates - Belleville dated December 1, l993.
Incorporated by reference to Exhibit 10 (t) to the
Registrant's Annual Report on Form 10-K for the year
ended January 31, 1994.
(10)(u) Lease of premises at 150 Clove Road, Little Falls, New Jersey,
between Total-Tel USA Inc. and the Prudential Insurance Company
of America dated February 22, l994. Incorporated by reference
to Exhibit 10 (u) to the Registrant's Annual Report on Form
10-K for the year ended January 31, l994.
(10)(v) Lease modification to the lease of the premises at 150 Clove
Road, Little Falls, New Jersey between TotalTel, Inc. and
The Prudential Company of America dated May 18, l994.
Incorporated by reference to Exhibit 10 (v) to the Registrant's
Annual Report on Form 10-K for the year ended January 31, l995.
(10)(w) Second lease modification to the lease of the
premises at 150 Clove Road, Little Falls, New Jersey between
TotalTel, Inc. and Theta Holding Company, L. P., successor to
the Prudential Insurance Company of America dated February 9, l995.
Incorporated by reference to Exhibit 10 (w) to the Registrant's
Annual Report on Form 10-K for the year ended January 31, l995.
(21) Subsidiaries of Registrant. Incorporated by reference to
Exhibit 22 to Registrant's Annual Report on Form 10-K for
the year ended January 31, 1994.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Total-Tel USA Communications, Inc.
Little Falls, New Jersey
We have audited the accompanying consolidated balance sheets of Total-
Tel USA Communications, Inc. and subsidiaries as of January 31, 1996 and
1995, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the three years in the period ended
January 31, 1996. Our audits also included the financial statement
schedule listed in the index at item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Total-Tel USA
Communications, Inc. and subsidiaries as of January 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
three years in the period ended January 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects the information set forth therein.
As discussed in Note B to the financial statements, effective February
1, 1994, the Company changed its method of accounting for marketable
securities in accordance with Statement of Financial Accounting
Standards No. 115 and, effective February 1, 1993, the Company changed
its method of accounting for income taxes in accordance with Statement
of Financial Accounting Standards No. 109.
Deloite & Touche LLP
New York, NY
April 19, 1996
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,177,138 $ 1,347,625
Investments available for sale 966,935 1,923,424
Trade accounts receivable (net of allowance for doubtful accounts
of $831,538 and $492,235 in 1996 and 1995, respectively) 8,741,918 5,939,634
Notes receivable 27,000 653,792
Deferred income taxes 314,600 263,000
Prepaid expenses and other current assets 392,974 420,309
----------- -----------
Total current assets 13,620,565 10,547,784
----------- -----------
PROPERTY AND EQUIPMENT, NET 6,011,005 3,924,139
OTHER ASSETS:
Notes receivable 90,281
Deferred line installation costs (net of accumulated amortization
of $796,170 and $710,921 in 1996 and 1995, respectively) 247,019 220,985
Other assets 426,164 372,665
----------- -----------
Total other assets 763,464 593,650
----------- -----------
$20,395,034 $15,065,573
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,604,459 $ 4,120,841
Other current and accrued liabilities 1,775,256 1,098,884
Salaries and wages payable 441,516 296,659
----------- -----------
Total current liabilities 8,821,231 5,516,384
----------- -----------
OTHER LONG-TERM LIABILITIES 313,742 110,814
----------- -----------
DEFERRED INCOME TAXES 560,481 345,581
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.05 per share; authorized 5,000,000 shares,
issued 1,868,806 and 1,864,806 shares in 1996 and 1995, respectively 93,440 93,240
Additional paid-in capital 3,600,105 3,621,324
Retained earnings 8,590,329 7,035,740
----------- -----------
12,283,874 10,750,304
Treasury stock - at cost - 405,255 and 415,055 shares
in 1996 and 1995, respectively (1,547,251) (1,584,687)
Receivable from shareholder (100,000) (100,000)
Unrealized gain on available for sale securities 62,957 27,177
----------- -----------
Total shareholders' equity 10,699,580 9,092,794
----------- -----------
$20,395,034 $15,065,573
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JANUARY 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $49,873,477 $29,816,632 $18,999.413
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 34,854,000 20,852,638 12,911,198
Selling, general and administrative 12,710,495 7,410,758 4,643,924
----------- ----------- -----------
Total costs and expenses 47,564,495 28,263,396 17,555,122
----------- ----------- -----------
OPERATING INCOME 2,308,982 1,553,236 1,444,291
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 166,170 146,465 177,554
Gain on sale of real estate 48,570 40,476
Other income 36,091 50,353 26,547
Interest expense (3,854) (3,112) (2,458)
----------- ----------- -----------
Total other income 198,407 242,276 242,119
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,507,389 1,795,512 1,686,410
INCOME TAX PROVISION 952,800 695,982 634,000
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,554,589 1,099,530 1,052,410
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- 104,000
----------- ----------- -----------
NET EARNINGS $ 1,554,589 $ 1,099,530 $ 1,156,410
=========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary:
Earnings before cumulative effect of change in
accounting principle $.95 $.68 $.67
Cumulative effect of change in accounting
for income taxes - - .07
---- ---- ----
Net earnings per common and common
equivalent share $.95 $.68 $.74
==== ==== ====
Fully diluted:
Earnings before cumulative effect of change in
accounting principle $.95 $.68 $.64
Cumulative effect of change in accounting
for income taxes - - .07
---- ---- ----
Net earnings per common and common
equivalent share $.95 $.68 $.71
==== ==== ====
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993 $86,088 $1,371,632 $6,987,367 $(1,584,687)
Receivable from shareholder
Net earnings 1,156,410
------- ---------- ---------- ----------
BALANCE AT JANUARY 31, 1994 86,088 1,371,632 8,143,777 (1,584,687)
Unrealized gain on available for sale
securities at February 1, 1995
Unrealized loss on available for sale securities
Exercise of employee stock options 562 48,715
Common stock dividend 6,590 2,200,977 (2,207,567)
Net earnings 1,099,530
------- ---------- ---------- ----------
BALANCE AT JANUARY 31, 1995 93,240 3,621,324 7,035,740 (1,584,687)
Unrealized gain on available for sale
securities
Exercise of employee stock option 200 15,727
Issuance of employee stock grants (36,946) 37,436
Net earnings 1,554,589
------- ---------- ---------- ----------
BALANCE AT JANUARY 31, 1996 $93,440 $3,600,105 $8,590,329 ($1,547,251)
======= ========== ========== ==========
<CAPTION>
Unrealized
Gain (Loss)
Receivable Available
From for Sale
Shareholder Securities Total
<S> <C> <C> <C>
BALANCE AT JANUARY 31, 1993 $ -- $ -- $6,860,400
Receivable from shareholder (100,000) (100,000)
Net earnings 1,156,410
---------- ---------- ----------
BALANCE AT JANUARY 31, 1994 (100,000) 7,916,810
Unrealized gain on available for sale
securities at February 1, 1995 70,211 70,211
Unrealized loss on available for sale securities (43,034) (43,034)
Exercise of employee stock options 49,277
Common stock dividend --
Net earnings 1,099,530
---------- ---------- ----------
BALANCE AT JANUARY 31, 1995 (100,000) 27,177 9,092,794
Unrealized gain on available for sale
securities 35,780 35,780
Exercise of employee stock option 15,927
Issuance of employee stock grants 490
Net earnings 1,554,589
---------- ---------- ----------
BALANCE AT JANUARY 31, 1996 $ (100,000) $62,957 $10,699,580
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,554,589 $1,099,530 $1,156,410
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,026,102 663,149 492,648
Provision for doubtful accounts 820,131 391,656 231,932
Noncash compensation expense 68,815 49,602 61,546
Cumulative effect of accounting change -- -- (104,000)
Gain on sale of real estate -- (48,570) (40,476)
Deferred income taxes 139,800 53,000 (81,000)
Change in assets and liabilities:
(Increase) decrease in assets:
Trade accounts receivable (3,622,415) (3,217,529) (1,237,138)
Prepaid expenses and other current assets 27,335 (22,296) (223,080)
Other assets (53,499) 11,416 (35,773)
Increase (decrease) in liabilities:
Accounts payable 2,483,618 1,874,974 1,097,564
Other current and accrued liabilities and
salaries and wages payable 738,956 659,873 12,673
Other long-term liabilities 202,928 110,814 --
----------- ---------- ----------
Net cash provided by operating activities 3,386,360 1,625,619 1,331,306
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable 628,792 125,447 140,446
Proceeds from sales and maturities of short-term
investments 1,600,963 1,705,893 3,234,996
Purchase of investments available for sale (581,517) (1,147,416)
Purchase of short-term investments -- -- (2,516,136)
Purchases of property and equipment (3,027,719) (2,268,339) (1,375,289)
Payments for deferred line installation costs (111,283) (111,327) (93,783)
Issuance of notes to shareholder (115,000) (50,000) (100,000)
Collection on notes receivable from shareholder 32,500 50,000 --
Purchase of officer's life insurance contract -- -- (85,598)
----------- ---------- ----------
Net cash used in investing activities (1,573,264) (1,695,742) (795,364)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 15,927 49,277 --
Repayment of long-term debt -- -- (58,188)
Employee stock grants 490 -- --
----------- ---------- ----------
Net cash provided by (used in) financing
activities 16,417 49,277 (58,188)
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $1,829,513 ($20,846) $477,754
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,347,625 1,368,471 890,717
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,177,138 $1,347,625 $1,368,471
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $3,854 $ 3,112 $ 2,758
Income taxes $ 560,000 $ 573,000 $ 678,000
NONCASH ITEMS:
Unrealized gain on available for sale securities $ 35,780 $ 27,177 $ --
Fair market value of stock dividend, 131,795 shares
granted at $16.75 per share $ -- $2,207,567 $ --
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
Total-Tel USA Communications, Inc. ("Total-Tel") with its wholly-
owned subsidiaries Total-Tel, Inc. Total-Tel USA, Inc., Total-Tel
Southeast Inc., Total-Tel Carrier Services, Inc. and Total-Tel
Services (collectively, the "Company") operates as a switch based
resale common carrier providing twenty-four hour, seven day a week,
domestic and international long distance telecommunications service
to customers throughout the United States. The Company's principal
customers are primarily businesses and more recently other common
carriers.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Total-Tel USA Communications, Inc. and its
subsidiaries, all of which are wholly-owned. All intercompany
transactions and balances have been eliminated in the consolidated
financial statements.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization is being provided by use of the
straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the shorter of the
term of the lease or the useful lives of the asset.
The estimated useful lives of the principal classes of assets are
as follows:
Classification Years
Machinery and equipment 5 - 10
Office furniture, fixtures and equipment 7 - 10
Vehicles 3 - 5
Leasehold improvements 2 - 10
Computer equipment and software 5 - 7
Deferred Line Installation Costs - The Company defers charges from
other common carriers which cover the cost of installing telephone
transmission facilities (lines). Amortization of these costs is
provided using the straight-line method over the estimated life
(five years) of the lines.
Investments - The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," (SFAS 115) effective February 1, 1994. This
Statement supersedes SFAS 12 "Accounting for Certain Marketable
Securities," previously utilized by the Company. The Company has
classified its marketable securities as available-for-sale securities.
Income Taxes - Effective February 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). This statement supercedes Accounting
Principles Board Opinion No. 11, "Accounting for Income Taxes,"
previously utilized by the Company to determine its provision for
income taxes. The cumulative effect of adopting SFAS No. 109 on the
Company's financial statements was to increase income by $104,000
for the year ended January 31, 1994.
The Company and its subsidiaries file a consolidated federal income
tax return.
Use of Estimates - The Company's financial statements include the use
of estimates and assumptions which have been developed by management
based on available facts and information. Actual results could differ
from those estimates.
Concentrations of Credit Risk - The Company sells its telecommunications
services and products to customers operating primarily in the north
eastern region of the United States. The Company performs ongoing
credit evaluations of its customers as it generally does not require
collateral. Allowances are maintained for potential credit losses and
such losses have been within management's expectations.
Earnings per Common and Common Equivalent Share - Earnings per share
were computed by dividing the net earnings by the weighted average
number of shares outstanding during each year. The weighted average
number of shares includes the number of outstanding common shares plus
the assumed exercise of the outstanding common stock options using the
treasury stock method.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with an original maturity of three months or less
to be cash equivalents. Cash and cash equivalents consist of cash on
hand, demand deposits and money market accounts.
C. INVESTMENT SECURITIES
Investments available for sale consist of:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------- ------------------------------------------------------
Gross Unrealized Market Gross Unrealized Market
Cost Gain Loss Value Cost Gain Loss Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal
bonds and
notes $582,063 $ - $ 6,296 $575,767 $1,602,866 $ - $ 9,921 $1,592,945
Mutual
funds 272,794 742 - 273,536 267,760 - 4,832 262,928
Common
stock 7,121 110,511 - 117,632 7,121 60,430 - 67,551
-------- -------- ------ -------- ---------- -------- -------- ----------
$861,978 $111,253 $ 6,296 $966,935 $1,877,747 $ 60,430 $ 14,753 $1,923,424
======== ======== ======= ======== ========== ======== ======== ==========
</TABLE>
Maturity dates of municipal bonds and notes as of January 31, 1996
are as follows:
Maturing Within Cost Market Value
1 year $479,974 $473,078
After 1 year through 5 years 102,089 102,689
-------- --------
$582,063 $575,767
======== ========
D. PROPERTY AND EQUIPMENT
Property and equipment consists of:
1996 1995
Machinery and equipment $ 7,814,911 $6,162,010
Office furniture, fixtures and equipment 1,070,249 782,382
Leasehold improvements 343,004 237,754
Vehicles 147,698 128,618
Computer equipment and software 1,704,239 705,548
Leasehold improvements in progress -- 36,070
----------- ----------
11,080,101 8,052,382
Less accumulated depreciation and amortization 5,069,096 4,128,243
=========== ==========
$ 6,011,005 $3,924,139
Depreciation and amortization expense related to property and equipment
for the years ended January 31, 1996, 1995 and 1994 was $940,853,
$580,414 and $411,377, respectively.
E. SALE OF REAL ESTATE HELD FOR INVESTMENT
In July 1985, the Company sold approximately 13 acres of land to two
unrelated individuals for $580,000. Payment was received in cash of
$120,000 and a $460,000 first purchase money note and mortgage, payable
in four annual installments of $50,000 each commencing August 1, 1986
and the final payment of $260,000 due August 1, 1990.
On August 1, 1990, the Company entered into a Second Modification of the
first purchase money note and mortgage which extended the term of the
note and mortgage from August 1, 1990 to August 1, 1994 and adjusted the
annual interest rate to equal the prime rate plus 1% with the maximum
interest rate not to exceed 12% per annum. The prime interest rate at
January 31, 1994 was 6%. In accordance with the Second Modification,
the mortgagee made a principal payment of $50,000 on August 1, 1990 and
the existing principal balance of $210,000 was payable in three annual
installments of $50,000 which commenced August 1, 1991 and a final
payment of $60,000 which was received on August 1, 1994.
For the fiscal year ended January 31, 1995, the Company recognized a
gain of $48,570. The Company used the installment method to report the
gain on the sale, which amounted to $469,519. For the fiscal
year ended January 31, 1994, the Company recognized a gain of
$40,476 related to this real estate sale.
F. INCOME TAXES
The provision for income taxes includes the following:
1996 1995 1994
Federal:
Current $663,000 $518,000 $563,000
Deferred 95,400 (13,000) (62,000)
State income taxes:
Current 150,000 124,982. 152,000
Deferred 44,400 66,000 (19,000)
-------- -------- -------
$952,800 $695,982 $634,000
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The income tax effects of significant items comprising the
Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1996 1995
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $217,600 $ -- $198,000 $ --
Accrued compensation expense 97,000 -- 65,000 --
Unamortized lease incentive -- 125,100 -- 44,000
-------- --------- -------- ---------
Total deferred tax assets 314,600 125,100 263,000 44,000
-------- --------- -------- ---------
Deferred tax liabilities:
Difference between book and tax basis
of property and equipment -- (643,581) -- (371,081)
Unrealized gains on securities
available for sale -- (42,000) -- (18,500)
-------- --------- -------- ---------
Total deferred tax liabilities -- (685,581) -- (389,581)
-------- --------- -------- ---------
Net deferred tax asset (liability) $314,600 $(560,481) $263,000 $(345,581)
</TABLE>
A reconciliation from the U.S. statutory tax rate of 34% to the
effective tax rate for income taxes on the consolidated statements of
earnings is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed expense at statutory rates $852,500 $610,000 $573,400
(Reductions) increase in taxes resulting from:
Tax-exempt interest income (23,200) (21,900) (34,300)
State taxes, net of federal income tax benefit 128,300 126,000 100,300
Other (4,800) (18,118). (5,400)
-------- -------- --------
Actual expense $952,800 $695,982 $634,000
</TABLE>
G. LEASE COMMITMENTS
The Company rents various facilities under lease agreements classified
as operating leases. One of the underlying agreements contains certain
incentives eliminating payments at the inception of the lease. Lease
incentives are amortized on a straight-line basis over the entire lease
term.
Under terms of these leases, the Company is required to pay its
proportionate share of increases in real estate taxes, operating
expenses and other related costs.
On December 1, 1993, the Company leased warehouse space in Belleville,
New Jersey from a partnership in which two of the partners are directors
and major shareholders. During the fiscal years ended January 31, 1996
and 1995, the Company paid rent of $59,760 and $49,101, respectively to
the partnership. The annual rent for this premise is $58,560 for the
first three years and $63,885 for years four and five and is included in
the table of minimum rentals shown below.
Future minimum annual rentals on these leases as of January 31, 1996
are as follows:
Year Ending
January 31,
1997 $ 595,988
1998 600,425
1999 585,488
2000 486,431
2001 and thereafter 1,316,437
----------
$3,584,769
==========
On February 9, 1995, the Company entered into a modification of its
lease for additional office space at its existing facility in Little
Falls, New Jersey. This agreement extends the original lease to August
14, 2002. The annual rental on the additional space will be $121,707
annually for months 7-48 and $138,154 thereafter. In addition, the
Company is liable for its proportionate share of the increases in real
estate taxes and operating expenses over the base year.
Rental expense for the years ended January 31, 1996, 1995 and 1994 was
approximately $517,660, $310,550 and $150,250, respectively.
H. EMPLOYEE BENEFIT PLANS
The Company has established a savings incentive plan for substantially
all employees of the Company which is qualified under section 401(k) of
the Internal Revenue Code. The savings plan provides for contributions
to an independent trustee by both the Company and its participating
employees. Under the plan, employees may contribute up to 15% of their
pretax base pay and the Company had made matching contributions equal to
25% of the first 6% of participant contributions. On January 1, 1996,
the Company increased its matching contribution to 50% of the first 5%
of participant contributions. Participants vest immediately in their
own contributions and over a period of six years for the Company's
contributions. Company contributions were approximately $41,000,
$25,000 and $16,000 for the years ended January 31, 1996, 1995 and 1994,
respectively.
I. STOCK OPTION PLAN
The Company has a stock option plan authorizing the granting of either
"Incentive Stock Options" or "Non-Qualified Stock Options" to acquire an
aggregate of not more than 332,450 shares of the Company's Common Stock
reserved for issuance under the Plan.
Incentive Stock Options granted pursuant to the Plan must have an
exercise price equal to the fair market value of the Company's Common
Stock at the time the option is granted, except that the price shall be
at least 110 percent of the fair market value where the option is
granted to an employee who owns more than 10 percent of the combined
voting power of all classes of the Company's voting stock. Non-Qualified
Stock Options granted pursuant to the Plan must have an exercise price
equal to at least 50 percent of the fair market value of the Company's
Common Stock at the time the option is granted. Incentive Stock Options
may be granted only to employees. Non-Qualified Stock Options may be
granted to employees as well as directors, independent contractors and
agents, as determined by the Board of Directors. All options available
to be granted under the Plan must be granted by September 1, 1997.
Outstanding options under the plan are as follows:
Number Option
of Shares Price
Outstanding February 1, 1993 211,750 $2.05 - 3.98
Granted 63,250 $4.50 - 5.45
Exercised -- --
Canceled (24,750) $2.05 - 5.45
-------
Outstanding January 31, 1994 250,250 $2.05 - 5.45
Granted 91,950 $12.00 - 19.25
Exercised (12,375) $ 3.98
Canceled (12,375) $2.05 - 3.98
-------
Outstanding January 31, 1995 317,450 $2.05 - 19.25
Granted 16,500 $15.98 - $17.25
Exercised (4,000) $ 3.98
Canceled (8,500) $ 17.50
------- ---------------
Outstanding January 31, 1996 321,450 $2.05 - 19.25
=======
Exercisable January 31, 1996 311,650 $2.05 - 19.25
======= =============
Available for grant - January 31, 1996 11,000
=======
Compensation expense related to the non-qualified stock options
was $68,815, $49,602 and $61,546 for the years ended January 31, 1996,
1995 and 1994, respectively.
J. NOTES RECEIVABLE
On May 22, 1990, the Company sold the net assets of its Mansol Ceramics
Company's manufacturing division (effective May 17, 1990) to a newly
organized company Mansol Industries, Inc. for approximately $1,418,000
in cash and a promissory note of approximately $877,000.
The promissory note which was payable over a period of five years, was
subordinated up to $1,250,000 of the buyer's institutional indebtedness
and was secured by a second lien on the buyer's assets. The principal
payments on the note were payable in forty-eight (48) equal monthly
installments of $7,537 from May 22, 1991 and, thereafter, every month to
May 22, 1995 at which time the unpaid principal balance and accrued
interest was due and payable. The note bore interest at an annual rate
equal to 1% below the prime commercial rate of the Chemical Bank of New
Jersey, N.A., but in no event to exceed 12% at any time. The unpaid
principal balance and accrued interest was paid on May 8, 1995.
K. NOTES RECEIVABLE FROM SHAREHOLDER
On May 27, 1993, the Company made a $25,000 non-interest bearing,
unsecured loan to an executive employee and shareholder of the Company.
The note, originally due October 1, 1993, was extended to December 31,
1995.
On November 1, 1993, the Company made a $100,000 unsecured loan to the
same employee for the purchase of Company common stock. This note which
is shown as a reduction in shareholders' equity bears interest at the
prime rate published in the Wall Street Journal. Interest payments are
due monthly and the principal balance which was originally due on April
1, 1995 was extended to December 31, 1996.
On March 1, 1995, the Company made a $55,000 unsecured loan to the same
employee. This note is due on demand, and bears interest at the prime
rate published in the Wall Street Journal. Interest payments are due
monthly, beginning on April 1, 1995. At January 31, 1996, $32,500 of
this note has been repaid.
On September 1995, the Company made a $60,000 unsecured loan to the same
employee. The note was due on demand with interest at 9% per annum.
On January 31, 1996, the notes dated May 27, 1993, March 1, 1995 and
September 1, 1995 together with any unpaid interest were combined into
one note with a principal balance of $117,281. The note bears interest
at 8% per annum and is payable in semimonthly installments commencing
February 7, 1996 for seven and one half years.
L. CONTINGENCIES
The Company is a defendant in two lawsuits filed by two of its customers
for alleged breach of contracts. The first suit seeks compensatory and
punitive damages in excess of $14,000,000. The second suit seeks
compensatory and punitive damages of $1,300,000. The Company believes
that both these suits are completely without merit and intends to
vigorously defend them.
******
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(CONSOLIDATED)
Column A Column B Column C Column D Column E
Additions
Charged to
Balance at Charged to Other Balance
Beginning Cost and Accounts- Deductions- at End of
Description of Period Expenses Describe Describe Period
YEAR ENDED JANUARY 31,
1996:
<S> <C> <C> <C> <C> <C>
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $ 492,235 $ 820,131 $ -- $ 480,828 $ 831,538
YEAR ENDED JANUARY 31,
1995:
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $294,009 $391,656 $ -- $193,430(1) $492,235
YEAR ENDED JANUARY 31,
1994:
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $150,349 $231,932 $ -- $ 88,272(1) $294,009
(1) Uncollectible accounts written-off, net of recoveries.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27 FINANCIAL DATA SCHEDULE
<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
JANUAURY 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE FISCAL YEAR ENDED JANUARY 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,177,138
<SECURITIES> 966,935
<RECEIVABLES> 9,573,456
<ALLOWANCES> 831,538
<INVENTORY> 0
<CURRENT-ASSETS> 13,620,565
<PP&E> 11,080,101
<DEPRECIATION> 5,069,096
<TOTAL-ASSETS> 20,395,034
<CURRENT-LIABILITIES> 8,821,231
<BONDS> 0
<COMMON> 93,440
0
0
<OTHER-SE> 10,606,140
<TOTAL-LIABILITY-AND-EQUITY> 20,395,034
<SALES> 49,873,477
<TOTAL-REVENUES> 50,075,738
<CGS> 34,854,000
<TOTAL-COSTS> 34,854,000
<OTHER-EXPENSES> 11,890,364
<LOSS-PROVISION> 820,131
<INTEREST-EXPENSE> 3,854
<INCOME-PRETAX> 2,507,389
<INCOME-TAX> 952,800
<INCOME-CONTINUING> 1,554,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,554,589
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
