UNITED STATES
-------------
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
-------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number 0-2180
TOTAL-TEL USA COMMUNICATIONS, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1656895
- --------------------- -----------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Clove Road, 8th Floor, Little Falls, NJ 07424
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 812-1100
Not applicable
----------------------------------------------------------
(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 December 10, 1996
- --------------------------------- ----------------------------------
Common Share, $.05 par value 2,936,330 shares
TOTAL-TEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
THIRD QUARTER REPORT ON FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statement of Earnings
Nine months ended October 31, 1996 and 1995
(unaudited) and three months ended October
31, 1996 and 1995 (unaudited) 3
Condensed Consolidated Balance Sheets
October 31, 1996 (unaudited), and
January 31, 1996 4-5
Condensed Consolidated Statements of Cash Flows
Nine months ended October 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 12
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Nine months ended Three months ended
October 31, October 31,
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $64,435,474 $35,589,435 $23,947,872 $13,454,112
------------ ------------ ------------- ------------
Costs and Expenses
Cost of Sales 47,812,689 24,631,159 18,135,389 9,010,975
Selling, general and administrative 13,254,121 9,031,414 4,501,669 3,495,237
------------ ------------ ------------- ------------
61,066,810 33,662,573 22,637,058 12,506,212
------------ ------------ ------------- ------------
Operating Income 3,368,664 1,926,862 1,310,814 947,900
------------ ------------ ------------- ------------
Other Income (Expense)
Interest income 102,306 121,187 41,144 25,202
Other income - Primarily Commissions 49,617 15,454 12,352 9,322
Interest expense (23,870) (5,811) (23,870) (902)
------------ ------------ ------------- ------------
Total Other Income 128,053 130,830 29,626 33,622
------------ ------------ ------------- ------------
Earnings before provision for income taxes 3,496,717 2,057,692 1,340,440 981,522
Provision for Income Tax 1,402,200 804,000 530,800 387,700
------------ ------------ ------------- ------------
NET EARNINGS $2,094,517 $1,253,692 $809,640 $593,822
------------ ------------ ------------- ------------
NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $0.61 $0.38 $0.23 $0.18
------------ ------------ ------------- ------------
Weighted Average Shares Outstanding 3,426,769 3,284,514 3,461,761 3,303,070
------------ ------------ ------------- ------------
Dividends Per Share NONE NONE NONE NONE
------------ ------------ ------------- ------------
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
1996 1996
(Unaudited) (Note)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $3,627,327 $3,177,138
Investments available for sale 1,341,381 966,935
Accounts receivable 13,972,507 8,741,918
Note receivable 133,854 27,000
Deferred income taxes 368,600 314,600
Prepaid expenses and other current assets 682,361 392,974
------------ ------------
TOTAL CURRENT ASSETS 20,126,030 13,620,565
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 9,640,441 6,011,005
------------ ------------
OTHER ASSETS:
Note Receivable 86,383 90,281
Deferred line installation costs, less
accumulated amortization 270,171 247,019
Other assets 466,382 426,164
------------ ------------
822,936 763,464
------------ ------------
$30,589,407 $20,395,034
------------ ------------
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.
(Continued)
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31 JANUARY 31,
1996 1996
------------ ------------
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $11,212,683 $6,604,459
Other current and accrued liabilities 2,812,585 1,775,256
Salaries and wages payable 668,612 441,516
------------ ------------
TOTAL CURRENT LIABILITIES 14,693,880 8,821,231
------------ ------------
NOTE PAYABLE - BANK 2,000,000 --
------------ ------------
OTHER LONG-TERM LIABILITIES 272,851 313,742
------------ ------------
DEFERRED INCOME TAXES 763,601 560,481
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 93,671 93,440
Additional paid-in capital 3,634,766 3,600,105
Retained earnings 10,684,846 8,590,329
------------ ------------
14,413,283 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 93,043 62,957
------------ ------------
Total shareholders' equity 12,859,075 10,699,580
------------ ------------
$30,589,407 $20,395,034
------------ ------------
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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
October 31,
-----------------
1996 1995
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $2,094,517 $1,253,692
Adjustment for non-cash charges 1,849,534 1,436,100
Changes in assets and liabilities ( 396,959) (201,756)
------------ ------------
Net cash provided by operating activities 3,547,092 2,488,036
------------ ------------
INVESTING ACTIVITIES:
Net maturities of securities available for sale 806,800 422,897
Purchase of securities available for sale (1,181,246) --
Collection of notes receivable 3,750 628,792
Note receivable employee (107,156) --
Purchase of property and equipment (1,943,752) (1,810,697)
Deposits on equipment (2,620,000) --
Additions to deferred line installation costs (90,191) (93,122)
------------ ------------
Net cash used in investing activities (5,131,795) (852,130)
------------ ------------
FINANCING ACTIVITIES:
Bank Loan 2,000,000 --
Exercise of stock options 34,892 --
------------ ------------
Net cash provided by financing activities 2,034,892 --
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 450,189 1,635,906
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,177,138 1,347,625
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $3,627,327 $2,983,531
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $23,870 5,811
Income taxes $939,932 $595,000
See notes to condensed consolidated financial statements.
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 nine month period ended October 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 stock split.
Note C -- Note Payable - Bank
On August 23, l996, the Company entered into a credit agreement
with a major New Jersey bank. This agreement provides the Company 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. On August 29,
1996, the Company drew down $2,000,000 of the $6,000,000 for the purchase
of a second switch which it anticipates should be operational in the first
quarter of the next fiscal year.
- -7-
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Results of Operations
Net sales were approximately $64,435,000 for the first nine months of the
current fiscal year, an increase of approximately $28,846,000 or 81.1% as
compared to the first nine months of the prior fiscal year. Net sales for
the third quarter of the current fiscal year were approximately
$23,948,000, an increase of approximately $10,494,000 or 78.0% compared to
the third quarter of the prior fiscal year. These increases were
attributable to intensive sales and marketing efforts by the Registrant and
a significant 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 nine months, the telephone service billed
approximately 482,531,000 minutes of calling as compared to approximately
253,047,000 minutes of calling for the comparable nine months of the prior
year, resulting in an increase of approximately 229,484,000 minutes or
90.7%. For the third fiscal quarter of the current fiscal year, the
Registrant billed approximately 195,716,000 minutes of calling as compared
to approximately 100,036,000 minutes of calling for the third quarter of
the prior fiscal year, an increase of 95,680,000 minutes or 95.6%. The
average revenue per minute decreased in the current fiscal nine month
period and third quarter of the current fiscal year as compared to the
prior fiscal year's nine month period and prior fiscal year's third
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 (wholesale).
Cost of sales increased approximately $23,182,000 or 94.1% to approximately
$47,813,000 for the current nine months and increased approximately
$9,124,000 or 101.3% to approximately $18,135,000 for the third quarter of
the current fiscal year. Both of these increases were unfavorable in
relation to the 81.1% increase in the sales volume for the nine month
period and the 78.0% increase in the third 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 nine months decreased to
approximately 25.8% as compared to approximately 30.8% for the first nine
months of the prior fiscal year, and decreased to 24.3% from 32.1% for the
third quarter of the current fiscal year as compared to the third 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 $.007 per minute lower for the first nine months and
$.012 for the third 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.
T0TAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Selling, general and administrative expense for the current nine months
was approximately $13,254,000, an increase of approximately $4,223,000 or
46.8% as compared to the first nine months of the prior fiscal year and
approximately $4,502,000 for the third quarter of the current fiscal year,
an increase of approximately $1,001,000 or 28.8% as compared to the third
quarter of the prior fiscal year. These increases for the nine months ended
October 31, l996 as compared to the first nine months of the prior year are
due primarily to increased salaries of approximately $1,887,000, sales
commissions of approximately $927,000, advertising and promotion of
approximately $345,000 and legal and consulting expense of approximately
$292,000. The increase for the third quarter of the current fiscal year as
compared to the third quarter of the prior fiscal year is due primarily to
increased salaries of approximately $632,000, sales commissions of
approximately $279,000, advertising and promotion of approximately $76,000
and legal and consulting expense of approximately $25,000.
The decrease in interest income for the first nine months of fiscal year
1996 was due to a reduction in funds invested for this period as compared
to the first nine months of the fiscal year ended January 31, l996.
Earnings per share increased to $.61 per share for the current nine months
as compared to $.38 per share for the nine months ended October 31, l995,
and increased to $.23 per share for the third quarter of the current fiscal
year as compared to $.18 per share for the quarter ended October 31, l995.
All prior periods have been adjusted to reflect the 2 for 1 stock split
issued by the Registrant on July 1, l996.
Liquidity and Capital Resources
At October 31, l996, the Registrant had working capital of $5,432,150, an
increase of $632,816 or 13.2% as compared to January 31, 1996. The ratio
of current assets to current liabilities at October 31, 1996 was 1.4:1, as
compared to a current ratio of 1.5:1 at January 31, 1996. The increase in
working capital at October 31, 1996 was primarily attributable to an
increase in cash of $450,189, investments available for sale of $374,446,
accounts receivable of $5,230,589, notes receivable of $106,854, current
deferred income taxes of $54,000 and prepaid expense and other current
accounts of $289,387 offset by increases in accounts payable of $4,608,224,
other current and accrued liabilities of $1,037,329, and salaries and wages
payable of $227,096. The Registrant has continued to maintain a strong
liquidity position.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
The increase in cash and cash equivalents of approximately $450,000 was the
result primarily of an increase in accounts payable and other current
liabilities of approximately $5,737,000; earnings of approximately
$2,095,000; bank borrowings of $2,000,000; non-cash charges of $1,850,000;
and exercise of stock options of approximately $35,000, partially offset by
an increase in accounts receivable of approximately $5,763,000; net of
provision for bad debts; the purchase of equipment of approximately
$2,034,000; an increase in other current assets of approximately $289,000;
an increase in notes receivable from employees of approximately $103,000; a
net increase in securities available for sale of approximately $374,000;
deposits on equipment of approximately $2,620,000; an increase in other
assets of approximately $40,000; and a decrease in other liabilities of
$41,000.
Capital expenditures during the first nine months of the current fiscal
year totaled approximately $4,715,000 and were financed from funds provided
by operations and bank borrowings. Approximately $2,620,000 of these
expenditures were deposits on the new switch; $1,118,000 was applicable to
the switching system to maintain the speed and quality of the network;
$178,000 was expended for equipment at customers locations, and
approximately $469,000 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 and leasehold improvements.
Capital expenditures for the balance of fiscal 1996 are estimated at
approximately $1,000,000 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; and for leasehold improvement for the new
switch site located in New York City.
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. The Registrant has drawn down
$2,000,000 as part of its initial payment for a new switch.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
THREE MONTHS ENDED OCTOBER 31, 1996
ITEMS 1 - 3 Not applicable
ITEM 4 Submission of matters to a vote of security
shareholders:
(a) Annual meeting of shareholders was held
October 10, 1996
(b) The following directors were elected at the
meeting:
Kevin Alward
Sol Feldman
Warren Feldman
Leon Genet
Jay J. Miller
(c) The shareholders approved an amendment
to the Registrant's Certificate of
Incorporation to increase the number of
authorized shares of Common Stock,
par value, $.05 per share, from 5,000,000
to 20,000,000.
SHARES VOTED SHARES VOTED
FOR AGAINST
1,550,840 256,148
(d) The shareholders approved the adoption of
the 1996 Stock Option Plan.
SHARES VOTED SHARES VOTED
FOR AGAINST
1,499,982 282,709
ITEM 5 Not applicable.
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits - 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during
the three months ended October 31, 1996
SIGNATURES
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.
----------------------------------
(Registrant)
Date December 12, 1996 By /S/ Warren H. Feldman
------------------ ----------------------
Warren H. Feldman, Esq.
President and Chief
Executive Officer
Date December 12, 1996 By /S/ Thomas P. Gunning
------------------ ----------------------
Thomas P. Gunning
Chief Financial Officer,
Secretary, Controller
and Principal Accounting Officer
<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
OCTOBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR NINE MONTHS ENDED OCTOBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 3,627,327
<SECURITIES> 1,341,381
<RECEIVABLES> 15,354,176
<ALLOWANCES> 1,381,669
<INVENTORY> 0
<CURRENT-ASSETS> 20,126,030
<PP&E> 15,607,543
<DEPRECIATION> 5,967,102
<TOTAL-ASSETS> 30,589,407
<CURRENT-LIABILITIES> 14,693,880
<BONDS> 2,000,000
<COMMON> 93,671
0
0
<OTHER-SE> 12,765,404
<TOTAL-LIABILITY-AND-EQUITY> 30,589,407
<SALES> 64,435,474
<TOTAL-REVENUES> 64,563,527
<CGS> 47,812,689
<TOTAL-COSTS> 47,812,689
<OTHER-EXPENSES> 13,786,869
<LOSS-PROVISION> 532,748
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,496,717
<INCOME-TAX> 1,402,200
<INCOME-CONTINUING> 2,094,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,094,517
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
