UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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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, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-2180
TOTAL-TEL USA COMMUNICATIONS, INC.
(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 812-1100
Not applicable
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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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 11, 1997
- ---------------------------- ---------------------------------
Common Share, $.05 par value 3,125,402 shares
TOTAL-TEL USA COMMUNICATIONS, INC.
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AND SUBSIDIARIES
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THIRD QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statement of Earnings
Nine months ended October 31, 1997 and 1996
(unaudited) and three months ended October
31, 1997 and 1996 (unaudited) 3
Condensed Consolidated Balance Sheets
October 31, 1997 (unaudited), and
January 31, 1997 4-5
Condensed Consolidated Statements of Cash Flows
Nine months ended October 31, 1997 and 1996
(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
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
----------------- ------------------
October 31, October 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net Sales $ 92,403,054 $ 64,435,474 $ 29,918,945 $ 23,947,872
------------ ----------- ------------ -----------
Costs and Expenses
Cost of Sales 74,191,131 47,812,689 23,478,087 18,135,389
Selling, general and administrative 16,106,963 13,254,121 5,864,283 4,501,669
------------ ----------- ------------ -----------
90,298,094 61,066,810 29,342,370 22,637,058
------------ ----------- ------------ -----------
Operating Income 2,104,960 3,368,664 576,575 1,310,814
------------ ----------- ------------ -----------
Other (Expense) Income
Interest income 77,607 102,306 27,316 41,144
Other income - Primarily Commissions 3,298 49,617 2,716 12,352
Interest expense (130,622) (23,870) (54,351) (23,870)
------------ ----------- ------------ -----------
Total Other (Expense) Income (49,717) 128,053 (24,319) 29,626
------------ ----------- ------------ -----------
Earnings before provision for income taxes 2,055,243 3,496,717 552,256 1,340,440
Provision for Income Tax 858,200 1,402,200 236,400 530,800
------------ ----------- ------------ -----------
NET EARNINGS $ 1,197,043 $ 2,094,517 $ 315,856 $ 809,640
------------ ----------- ------------ -----------
NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $0.35 $0.61 $0.09 $0.23
------------ ----------- ------------ -----------
Weighted Average Shares Outstanding 3,464,994 3,426,769 3,502,015 3,461,761
------------ ----------- ------------ -----------
Dividends Per Share NONE NONE NONE NONE
------------ ----------- ------------ -----------
See notes to condensed consolidated financial statements.
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1997
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,131,512 $ 2,589,187
Investments available for sale 849,460 1,010,594
Accounts receivable 19,208,197 13,933,652
Note receivable 145,621 163,706
Deferred income taxes 280,900 263,600
Prepaid expenses and other current assets 631,014 583,223
------------ ------------
TOTAL CURRENT ASSETS 23,246,704 18,543,962
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 12,099,161 11,065,689
------------ ------------
OTHER ASSETS:
Note Receivable 86,383 86,383
Deferred line installation costs, less
accumulated amortization 312,997 281,392
Other assets 781,739 516,635
------------ ------------
1,181,119 884,410
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$ 36,526,984 $ 30,494,061
NOTE: The condensed consolidated balance sheet at January 31, 1997 has been derived from
the Company's audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
(Continued)
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1997
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(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion - long term debt $ 477,000 $ -
Accounts payable 14,749,291 10,222,260
Other current and accrued liabilities 2,471,659 2,222,141
Salaries and wages payable 535,882 613,477
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TOTAL CURRENT LIABILITIES 18,233,832 13,057,878
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OTHER LONG-TERM LIABILITIES 307,268 259,220
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LONG-TERM DEBT 2,217,088 2,940,000
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DEFERRED INCOME TAXES 864,548 850,301
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SHAREHOLDERS' EQUITY
Common stock 196,900 187,792
Additional paid-in capital 3,926,028 3,572,026
Retained earnings 12,375,510 11,178,467
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16,498,438 14,938,285
Treasury stock (1,547,331) (1,547,251)
Receivable from shareholder (100,000) (100,000)
Unrealized gain on securities available for sale 53,141 95,628
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Total shareholders' equity 14,904,248 13,386,662
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$ 36,526,984 $ 30,494,061
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NOTE: The balance sheet at January 31, 1997 has been derived from the
Company's audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
TOTAL TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
-----------------
October 31,
------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,197,043 $ 2,094,517
Adjustment for non-cash charges 1,905,168 1,849,534
Changes in assets and liabilities (1,199,992) (396,959)
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Net cash provided by operating activities 1,902,219 3,547,092
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INVESTING ACTIVITIES:
Repayment of long-term debt (245,912) -
Net maturities of securities available for sale 221,112 806,800
Purchase of securities available for sale (102,545) (1,181,246)
Collection of notes receivable 18,085 3,750
Note receivable employee - (107,156)
Purchase of property and equipment (2,436,914) (1,943,752)
Deposits on equipment - (2,620,000)
Additions to deferred line installation costs (110,167) (90,191)
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Net cash used in investing activities (2,656,341) (5,131,795)
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FINANCING ACTIVITIES:
Bank Loan - 2,000,000
Exercise of stock options 296,447 34,892
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Net cash provided by financing activities 296,447 2,034,892
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (457,675) 450,189
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,589,187 3,177,138
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,131,512 $ 3,627,327
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 129,573 23,870
Income taxes $ 752,792 $ 939,932
See notes to condensed consolidated financial statements.
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
-----------
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do
not include all information and notes required by generally accepted
accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements
included in the Annual Report on Form 10-K of Total-Tel USA
Communications, Inc. and Subsidiaries (the "Company") for the fiscal
year ended January 31, 1997. 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ending January 31, 1998.
Note B -- New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accountings Standards No. 128, "Earnings per Share," which
is effective for financial statements ending after December 15, 1997.
This statement supersedes Accounting Principles Board Opinion No. 15
and replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex
capital structures, and provides guidance on other computational
changes. Had the provisions of the statement been effective for the
current quarter, the following pro forma EPS amounts would have been
disclosed:
OCTOBER 31, 1997
----------------
THREE MONTHS NINE MONTHS
------------ -----------
Basic EPS: $ 0.10 $ 0.38
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Diluted EPS: $ 0.09 $ 0.35
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The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129 "Disclosure of Information about
Capital Structure," Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1997. The Company believes these
Statements will not have a material impact on the Consolidated
Financial Statements of the Company when adopted in the fourth quarter
of Fiscal 1998.
NOTE C -- Long Term Debt
On September 1, l997, the Registrant exercised an option under an
Equipment Facility and Revolving Credit Agreement (the "Facility") with
a major New Jersey bank, to term out its present long-term debt. The
term note is for sixty (60) months at a fixed interest rate of 7.71%
and is payable in equal monthly installments of $55,923.44, which
includes principal and interest.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULT OF OPERATIONS
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Results of Operations
- ---------------------
Net sales were approximately $92,403,000 for the first nine months of
the current fiscal year, an increase of approximately $27,968,000 or
43.4% 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 $29,919,000, an increase of approximately $5,971,000 or
24.9% 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 1998.
For the current fiscal nine months, the telephone service billed
approximately 646,673,000 minutes of calling as compared to
approximately 482,531,000 minutes of calling for the comparable nine
months of the prior year, an increase of approximately 164,142,000
minutes or 34.0%. For the third fiscal quarter of the current fiscal
year, the Registrant billed approximately 221,090,000 minutes of
calling as compared to approximately 195,716,000 minutes of calling for
the third quarter of the prior fiscal year, an increase of 25,374,000
minutes or 13.0%. 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 $26,378,000 or 55.2% to
approximately $74,191,000 for the current nine months and increased
approximately $5,343,000 or 29.5% to approximately $23,478,000 for the
third quarter of the current fiscal year. Both of these increases were
unfavorable in relation to the 43.4% increase in the sales volume for
the nine month period and the 24.9% 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 19.7% as compared to
approximately 25.8% for the first nine months of the prior fiscal year,
and decreased to 21.5% from 24.3% 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
substantial increase in wholesale revenues at substantially lower
margins and severe pricing pressure on retail revenues.
Selling, general and administrative expense for the current nine
months was approximately $16,107,000, an increase of approximately
$2,853,000 or 21.5% as compared to the first nine months of the prior
fiscal year and approximately $5,864,000 for the third quarter of the
current fiscal year, an increase of approximately $1,362,000 or 30.3%
as compared to the third quarter of the prior fiscal year. The increase
for the nine months ended October 31, l997 as compared to the first
nine months of the prior year is due primarily to increased salaries of
approximately $1,302,000, sales commissions of approximately $702,000,
advertising and promotion of approximately $63,000, employee benefits
of approximately $123,000, rent and utilities of approximately $308,000
offset by a decrease in legal and consulting expense of approximately
$58,000. 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 $468,000, sales
commissions of approximately $282,000, advertising and promotion of
approximately $6,000, legal and consulting expense of approximately
$102,000, employee benefits of approximately $38,000 and rent and
utilities of approximately $161,000.
The decrease in interest income for the first nine months of fiscal
year 1997 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,
l997.
Earnings per share decreased to $.35 per share for the current nine
months as compared to $.61 per share for the nine months ended October
31, l996, and decreased to $.09 per share for the third quarter of the
current fiscal year as compared to $.23 per share for the quarter ended
October 31, l996. All prior periods have been adjusted to reflect a 2
for 1 stock split effective July 1, l996.
Liquidity and Capital Resources
- -------------------------------
At October 31, l997, the Registrant had working capital of $5,012,872,
a decrease of $473,212 or 8.6% as compared to January 31, 1997. The
ratio of current assets to current liabilities at October 31, 1997 was
1.3:1, as compared to a current ratio of 1.4:1 at January 31, 1997.
The decrease in working capital at October 31, 1997 was primarily
attributable to an increase in accounts receivable of $5,274,545,
current deferred income taxes of $17,300 and prepaid expense and other
current accounts of $47,791 and a decrease in salaries and wages
payable of $77,595 offset by increases in accounts payable of
$4,527,031, other current and accrued liabilities of $249,518, current
portion of long term debt of $477,000 and decreases in cash of
$457,675, investments available for sale of $161,134 and notes
receivable of $18,085.
The decrease in cash and cash equivalents of approximately $458,000 was
the result primarily of an increase in accounts payable and other
current liabilities of approximately $4,589,000; earnings of
approximately $1,197,000; non-cash charges of $1,905,000; a net
increase in securities available for sale of approximately $119,000;
collection of notes receivable of approximately $18,000, an increase in
other exercise of stock options of approximately $296,000, offset by
repayments of long-term debt of approximately $246,000, an increase in
accounts receivable of approximately $5,524,000; the purchase of
equipment of approximately $2,547,000; an increase in other current
assets of approximately $48,000 and an increase in other assets of
approximately $265,000.
Capital expenditures during the first nine months of the current fiscal
year totaled approximately $2,437,000 and were financed from funds
provided by operations and bank borrowings. Approximately $677,000 was
expended on the New York switch; $465,000 for the switching system to
maintain the speed and quality of the network; $485,000 for equipment
at the Little Falls Network Operation Center, and approximately
$408,000 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, vehicles and leasehold improvements.
Capital expenditures for the balance of fiscal 1997 are estimated at
approximately $1,750,000 and are expected to be used for the following:
To purchase a third switching facility which will be located in Miami,
Florida; to provide further enhancements and capacity to the existing
signaling and switching system: to improve the interconnection to the
Bell Companies and other long distance carriers: 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 the present system of the Registrant and
continued development of the local network for the new sales and
administrative offices in Little Falls, New Jersey.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
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PART II - OTHER INFORMATION
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THREE MONTHS ENDED OCTOBER 31, 1997
-----------------------------------
ITEMS 1 - 3 Not applicable
ITEM 4 Submission of matters to a vote of security shareholders:
(a) Annual meeting of shareholders was held
September 23, 1997
(b) The following directors were elected at the meeting:
Sol Feldman
Warren Feldman
Leon Genet
Jay J. Miller
Kevin Alward, a nominee for re-election to the Board,
declined to stand for election.
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, 1997
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 11, 1997 By /S/ Warren H. Feldman
------------------ -----------------------
Warren H. Feldman, Esq.
President and Chief Executive
Officer
Date December 11, 1997 By /S/ Thomas P. Gunning
------------------ -----------------------
Thomas P. Gunning
Chief Financial Officer, Secretary,
Treasurer 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, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR NINE MONTHS ENDED OCTOBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 2,131,512
<SECURITIES> 849,460
<RECEIVABLES> 20,486,532
<ALLOWANCES> 1,278,335
<INVENTORY> 0
<CURRENT-ASSETS> 23,246,704
<PP&E> 17,663,013
<DEPRECIATION> 5,563,852
<TOTAL-ASSETS> 36,526,984
<CURRENT-LIABILITIES> 18,233,832
<BONDS> 2,217,088
<COMMON> 196,900
0
0
<OTHER-SE> 14,707,348
<TOTAL-LIABILITY-AND-EQUITY> 36,526,984
<SALES> 92,403,054
<TOTAL-REVENUES> 92,483,959
<CGS> 74,191,131
<TOTAL-COSTS> 74,191,131
<OTHER-EXPENSES> 15,857,866
<LOSS-PROVISION> 249,097
<INTEREST-EXPENSE> 130,622
<INCOME-PRETAX> 2,055,243
<INCOME-TAX> 858,200
<INCOME-CONTINUING> 1,197,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,197,043
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
