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 July 31, 1997
-----------------
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 September 11, 1996
- ---------------------------- ---------------------------------
Common Share, $.05 par value 3,127,202 shares
TOTAL-TEL USA COMMUNICATIONS, INC.
----------------------------------
AND SUBSIDIARIES
----------------
SECOND QUARTER REPORT ON FORM 10-Q
----------------------------------
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statement of Earnings
Six months ended July 31, 1997 and 1996
(unaudited) and three months ended July
31, 1997 and 1996 (unaudited) 3
Condensed Consolidated Balance Sheets
July 31, 1997 (unaudited), and
January 31, 1997 4-5
Condensed Consolidated Statements of Cash Flows
Six months ended July 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 11
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- -------------------
July 31, July 31,
----------- ---------
1997 1996 1997 1996
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net Sales $ 62,484,109 $ 40,487,602 $ 36,151,582 $ 23,117,555
Costs and Expenses
Cost of Sales 50,713,044 29,677,300 30,445,599 17,088,793
Selling, general and administrative 10,242,680 8,752,452 5,225,793 4,777,632
------------ ----------- ------------ -----------
60,955,724 38,429,752 35,671,392 21,866,425
------------ ----------- ------------ -----------
Operating Income 1,528,385 2,057,850 480,190 1,251,130
------------ ----------- ------------ -----------
Other (Expense) Income
Interest Income 50,291 61,162 24,781 37,543
Other Income (Expense) 582 37,265 (4,941) 21,522
Interest expense (76,271) - (41,219) -
------------ ----------- ------------ -----------
Total Other (Expense) Income (25,398) 98,427 (21,379) 59,065
------------ ----------- ------------ -----------
Earnings before provision for income taxes 1,502,987 2,156,277 458,811 1,310,195
Provision for Income Tax 621,800 871,400 200,400 528,700
------------ ----------- ------------ -----------
NET EARNINGS $ 881,187 $ 1,284,877 $ 258,411 $ 781,495
------------ ----------- ------------ -----------
NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $0.26 $0.38 $0.07 $0.23
------------ ----------- ------------ -----------
Weighted Average Shares Outstanding 3,442,366 3,413,842 3,465,536 3,357,164
------------ ----------- ------------ -----------
Dividends Per Share NONE NONE NONE NONE
------------ ----------- ------------ -----------
See notes to condensed consolidated financial statements.
</TABLE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
--------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,183,923 $ 2,589,187
Investments available for sale 922,494 1,010,594
Accounts receivable 21,105,732 13,933,652
Note receivable 147,375 163,706
Deferred income taxes 263,900 263,600
Prepaid expenses and other current assets 697,275 583,223
TOTAL CURRENT ASSETS 25,320,699 18,543,962
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 11,564,448 11,065,689
OTHER ASSETS:
Note Receivable 86,383 86,383
Deferred line installation costs, less
accumulated amortization 329,222 281,392
Other assets 775,537 516,635
------------ ------------
1,191,142 884,410
------------ ------------
$ 38,076,289 $ 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
---------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
--------- -----------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,717,699 $ 10,222,260
Other current and accrued liabilities 2,154,674 2,222,141
Salaries and wages payable 509,638 613,477
------------- ------------
TOTAL CURRENT LIABILITIES 19,382,011 13,057,878
------------- ------------
OTHER LONG-TERM LIABILITIES 282,781 259,220
------------- ------------
LONG-TERM DEBT 2,940,000 2,940,000
------------- ------------
DEFERRED INCOME TAXES 848,398 850,301
------------- ------------
SHAREHOLDERS' EQUITY
Common stock 196,875 187,792
Additional paid-in capital 3,921,303 3,572,026
Retained earnings 12,059,654 11,178,467
------------- ------------
16,177,832 14,938,285
Treasury stock (1,547,301) (1,547,251)
Receivable from shareholder (100,000) (100,000)
Unrealized gain on securities available for sale 92,568 95,628
------------- ------------
Total shareholders' equity 14,623,099 13,386,662
------------- ------------
$ 38,076,289 $ 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.
</TABLE>
TOTAL TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
July 31,
1997 1996
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 881,187 $ 1,284,877
Adjustment for non-cash charges 1,304,666 1,318,054
Changes in assets and liabilities (1,498,643) (88,932)
------------- ------------
Net cash provided by operating activities 687,210 2,513,999
------------- ------------
INVESTING ACTIVITIES:
Maturities of securities available for sale 88,100 471,400
Purchase of securities available for sale - (685,141)
Collection of notes receivable 16,331 2,135
Note receivable employee - (107,156)
Purchase of property and equipment (1,388,932) (1,286,189)
Deposits on equipment - (745,000)
Additions to deferred line installation costs (99,670) (56,630)
------------- ------------
Net cash used in investing activities (1,384,171) (2,406,581)
------------- ------------
FINANCING ACTIVITIES:
Exercise of stock options 291,697 34,892
------------- ------------
Net cash provided by financing activities 291,697 34,892
------------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (405,264) 142,310
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,589,187 3,177,138
------------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,183,923 $ 3,319,448
------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 78,859 -
Income taxes $ 588,761 $ 590,000
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, 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 six month period ended July 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 Principals 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:
JULY 31, 1997
-------------
THREE MONTHS SIX MONTHS
------------ -----------
Basic EPS: $ 0.08 $ 0.28
Diluted EPS: $ 0.07 $ 0.26
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
Fiscal 1998.
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 $62,484,000 for the first six months of
the current fiscal year, an increase of approximately $21,997,000 or
54.3% as compared to the first six months of the prior fiscal year.
Net sales for the second quarter of the current fiscal year were
approximately $36,152,000, an increase of approximately $13,034,000 or
56.4% compared to the second quarter of the prior fiscal year. These
increases were attributable to substantially greater carrier sales.
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 six months, the telephone service billed
approximately 415,606,000 minutes of calling as compared to
approximately 286,816,000 minutes of calling for the comparable six
months of the prior year, resulting in an increase of approximately
128,790,000 minutes or 44.9%. For the second fiscal quarter of the
current fiscal year, the Registrant billed approximately 219,675,000
minutes of calling as compared to approximately 152,636,000 minutes of
calling for the second quarter of the prior fiscal year, an increase of
67,039,000 minutes or 43.9%. The average revenue per minute increased
slightly in the current fiscal six month period and second quarter of
the current fiscal year as compared to the prior fiscal year's six
month period and prior fiscal year's second quarter, and was primarily
attributable to an increase in international calling minutes.
Cost of sales increased approximately $21,036,000 or 70.9% to
approximately $50,713,000 for the current six months and increased
approximately $13,357,000 or 78.2% to approximately $30,446,000 for the
second quarter of the current fiscal year. Both of these increases were
unfavorable in relation to the 54.3% increase in the sales volume for
the six month period and the 56.4% increase in the second quarter.
While the Registrant was able to continue to negotiate lower line rates
from several of its major suppliers, the gross margin for the current
six months decreased to approximately 18.8% as compared to
approximately 26.7% for the first six months of the prior fiscal year,
and decreased to 15.8% from 26.1% for the second quarter of the current
fiscal year as compared to the second quarter of the prior fiscal year.
These decreases in the gross margins are reflective of the increased
cost per minute incurred by the Registrant which was approximately
$.019 per minute higher for the first six months and $.027 per minute
higher for the second quarter of the current fiscal year as compared to
the respective periods of the prior fiscal year.
Selling, general and administrative expense for the current six months
was approximately $10,243,000, an increase of approximately $1,490,000
or 17.0% as compared to the first six months of the prior fiscal year
and approximately $5,226,000 for the second quarter of the current
fiscal year, an increase of approximately $448,000 or 9.4% as compared
to the second quarter of the prior fiscal year. These increases for the
six months ended July 31, l997 as compared to the first six months of
the prior year are due primarily to increased salaries of approximately
$1,637,000, sales commissions of approximately $419,400, partially
offset by a reduction in bad debt expense of $401,000, advertising and
promotion of approximately $56,000 and legal and consulting expense of
approximately $160,000. The increase for the second quarter of the
current fiscal year as compared to the second quarter of the prior
fiscal year is due primarily to increased salaries of approximately
$824,000, sales commissions of approximately $186,000, partially offset
by a reduction in bad debt expense of approximately $429,000,
advertising and promotion of approximately $28,000 and legal and
consulting expense of approximately $80,000.
The decrease in interest income for the first six months of fiscal year
1998 was due to a reduction in funds invested for this period as
compared to the first six months of the fiscal year ended January 31,
l997.
Earnings per share decreased to $.26 per share for the current six
months as compared to $.38 per share for the six months ended July 31,
l996, and decreased to $.07 per share for the second quarter of the
current fiscal year as compared to $.23 per share for the quarter ended
July 31, l996.
Liquidity and Capital Resources
At July 31, l997, the Registrant had working capital of $5,938,688, an
increase of $452,605 or 8.3% as compared to January 31, 1997. The ratio
of current assets to current liabilities at July 31, 1997 was 1.3:1, as
compared to a current ratio of 1.4:1 at January 31, 1997. The increase
in working capital at July 31, 1997 was primarily attributable to an
increase in accounts receivable of approximately $7,402,000, a decrease
in other current and accrued liabilities of $67,000, a decrease in cash
of approximately $405,000, an increase in accounts payable of
approximately $6,495,000, an increase in salaries and wages payable of
approximately $104,000, an increase in prepaid expenses and other
current assets of approximately $114,000 and decrease in investments
available for sale of approximately $88,000. The Registrant has
continued to maintain a strong liquidity position.
The decrease in cash of approximately $405,000 was the result primarily
of an increase in accounts receivable and other current assets of
approximately $7,516,000, an increase in other assets of approximately
$259,000, a decrease in other current liabilities of approximately
$67,000, a decrease in salaries and wages payable of approximately
$104,000 and the purchase of equipment of approximately $1,489,000
partially offset by net earnings of approximately $881,000, non cash
charges of approximately $1,305,000 an increase in accounts payable of
approximately $6,495,000, the exercise of stock options of
approximately $292,000, a net decrease in securities available for sale
of approximately $88,000 and the collections of approximately $16,000
of notes receivable.
Capital expenditures during the first six months of the current fiscal
year totaled approximately $1,239,000 and were financed from funds
provided by operations. Approximately $989,000 of these expenditures
were applicable to the switching system to maintain the speed and
quality of the network. Approximately $100,000 was expended for
equipment at customers locations. In addition, approximately $150,000
was expended for the local area network in the Little Falls, New Jersey
office to improve management information systems and operating
efficiencies. The balance of capital expenditures was for furniture and
fixtures.
Capital expenditures for the balance of fiscal 1998 are estimated at
approximately $2,800,000 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 the purchase of
a switch in Florida.
As of July 31, l997, the Registrant had a credit facility with a major
New Jersey bank. This agreement provides the Registrant with a line of
credit of $10,000,000 of which $4,000,000 is unsecured and may be used
for working capital purposes and the balance of $6,000,000 is available
to finance 80% of future equipment purchases. At July 31, l997 the
Registrant has borrowed $2,000,000 for the purchase of equipment. The
Registrant is currently negotiating an increase in both the working
capital line and the capital equipment line.
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
PART II - OTHER INFORMATION
---------------------------
THREE MONTHS ENDED JULY 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
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 for the three
months ended July 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 September 30, 1997 By /S/ Warren H. Feldman
------------------ ----------------------
Warren H. Feldman, Esq., Chairman,
President and Chief Executive Officer
Date September 30, 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
JULY 31, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR SIX MONTHS ENDED JULY 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 2,183,923
<SECURITIES> 922,494
<RECEIVABLES> 22,389,446
<ALLOWANCES> 1,283,714
<INVENTORY> 0
<CURRENT-ASSETS> 25,320,699
<PP&E> 16,614,565
<DEPRECIATION> 5,050,117
<TOTAL-ASSETS> 38,076,289
<CURRENT-LIABILITIES> 19,382,011
<BONDS> 2,940,000
<COMMON> 196,875
0
0
<OTHER-SE> 14,426,224
<TOTAL-LIABILITY-AND-EQUITY> 38,076,289
<SALES> 62,484,109
<TOTAL-REVENUES> 62,534,982
<CGS> 50,713,044
<TOTAL-COSTS> 50,713,044
<OTHER-EXPENSES> 10,168,176
<LOSS-PROVISION> 74,504
<INTEREST-EXPENSE> 76,271
<INCOME-PRETAX> 1,502,987
<INCOME-TAX> 621,800
<INCOME-CONTINUING> 881,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 881,187
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
