<PAGE>
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, 1999
---------------
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)
<TABLE>
<S> <C>
NEW JERSEY 22-1656895
- ------------------------------- -------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
150 CLOVE ROAD, 8TH FLOOR, LITTLE FALLS, NJ 07424
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 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.
<TABLE>
<CAPTION>
Class Outstanding at September 14, 1999
- ---------------------------- ---------------------------------
<S> <C>
Common Share, $.05 par value 7,854,182 shares
</TABLE>
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
SECOND QUARTER REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
INDEX
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statements of Earnings and
Comprehensive Income
Six months ended July 31, 1999 and 1998
(unaudited) and three months ended July
31, 1999 and 1998 (unaudited) 3
Condensed Consolidated Balance Sheets
July 31, 1999 (unaudited), and
January 31, 1999 4-5
Condensed Consolidated Statements of Cash Flows
Six months ended July 31, 1999 and 1998
(unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Items 1-5 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
-2-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, July 31,
--------------------- ---------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 70,146,954 $ 65,438,437 $ 36,616,906 $ 33,556,844
------------ ------------ ------------ -------------
Costs and Expenses
Cost of Sales 55,699,357 51,280,565 29,169,672 26,145,660
Selling general and administrative 13,338,017 13,379,084 6,856,747 7,043,103
------------ ------------ ------------ -------------
Total costs and expenses 69,037,374 64,659,649 36,026,419 33,188,763
------------ ------------ ------------ -------------
OPERATING INCOME 1,109,580 778,788 590,487 368,081
------------ ------------ ------------ -------------
Other (Expense) Income
Interest Income 36,436 50,131 13,313 24,245
Other (Expense) Income (4,393) 141,000 10,011 90,419
Interest Expense (78,322) (97,941) (37,880) (49,426)
------------ ------------ ------------ -------------
Total Other (Expense) Income (46,279) 93,190 (14,556) 65,238
------------ ------------ ------------ -------------
Earnings before Provision for Income Taxes 1,063,301 871,978 575,931 433,319
Provision for Income Tax 428,365 331,960 236,865 156,520
------------ ------------ ------------ -------------
NET EARNINGS 634,936 540,018 339,066 276,799
Other Comprehensive Income, net of tax:
Unrealized holding gain 19,521 7,672 (3,396) (17,721)
------------ ------------ ------------ -------------
COMPREHENSIVE INCOME $ 654,457 $ 547,690 $ 335,670 $ 259,078
============ ============ ============ =============
BASIC EARNINGS PER COMMON SHARE $ 0.09 $ 0.08 $ 0.05 $ 0.04
------------ ------------ ------------ -------------
DILUTED EARNINGS PER COMMON SHARE $ 0.09 $ 0.07 $ 0.05 $ 0.04
------------ ------------ ------------ -------------
DIVIDENDS PER SHARE NONE NONE NONE NONE
</TABLE>
See notes to condensed consolidated financial statements
-3-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
------------ -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,312,594 $ 6,051,892
Investments available for sale 584,679 549,612
Accounts receivable 21,512,545 18,732,480
Note receivable 50,000 95,402
Deferred income taxes 496,620 1,419,642
Prepaid expenses and other current assets 2,644,593 1,801,210
------------ ------------
TOTAL CURRENT ASSETS 29,601,031 $ 28,650,238
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 13,634,397 14,473,261
------------ ------------
OTHER ASSETS:
Deferred line installation costs,
Less accumulated amortization 304,577 447,226
Other assets 456,170 488,175
Deferred income taxes 1,667,387 1,633,238
------------ ------------
2,428,134 2,568,639
------------ ------------
$ 45,663,562 $ 45,692,138
============ ============
</TABLE>
NOTE: The balance sheet at January 31, 1999 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
(Continued)
-4-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 546,751 $ 526,361
Accounts payable 20,713,511 20,699,873
Accrued restructuring costs 238,004 2,128,000
Other current and accrued liabilities 3,161,656 3,037,255
Salaries and wages payable 921,396 998,081
------------ ------------
TOTAL CURRENT LIABILITIES 25,581,318 27,389,570
------------ ------------
OTHER LONG-TERM LIABILITIES 276,630 294,500
------------ ------------
LONG-TERM DEBT 1,286,788 1,565,884
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 468,203 455,739
Additional paid-in-capital 24,219,884 22,809,518
Retained earnings 7,392,923 6,757,987
------------ ------------
32,081,010 30,023,244
Unearned ESOP Shares (12,225,000) (12,225,000)
Treasury stock (1,457,426) (1,456,781)
Accumulated other comprehensive inco 120,242 100,721
------------ ------------
Total Shareholders' Equity 18,518,826 16,442,184
------------ ------------
$ 45,663,562 $ 45,692,138
============ ============
</TABLE>
NOTE: The balance sheet at January 31, 1999 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
-5-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
----------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 634,936 $ 540,018
Adjustment for non-cash charges 3,294,717 1,962,726
Changes in assets and liabilities (5,097,072) (1,046,276)
------------ ------------
Net cash (used) provided by operating activities (1,167,419) 1,456,468
------------ ------------
INVESTING ACTIVITIES:
(Increase) decrease in marketable securities (15,546) 76,273
Purchase of securities available for sale -- (51,273)
Collection of notes receivable 45,402 16,607
Note receivable -- (234,550)
Purchase of property and equipment (1,773,162) (2,523,008)
Proceeds on sale of fixed assets 23,909 --
Additions to deferred line installation costs (15,961) (57,771)
------------ ------------
Net cash used in investing activities (1,735,358) (2,773,722)
------------ ------------
FINANCING ACTIVITIES:
Exercise of stock options 1,422,185 424,313
Repayments of bank borrowings (258,706) (239,519)
Tax benefit of options exercised -- 377,500
------------ ------------
Net cash provided by financing activities 1,163,479 562,294
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,739,298) (754,960)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,051,892 3,416,904
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,312,594 $ 2,661,944
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 78,322 $ 97,941
Income taxes $ 3,400 $ 30,000
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
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 the consolidated financial
statements included in the Annual Report on Form 10-K of Total-Tel USA
Communications, Inc. and Subsidiaries (the "Registrant") for the fiscal year
ended January 31, 1999. 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, 1999 are not necessarily indicative of the results that may be
expected for the year ending January 31, 2000.
NOTE B -- STOCK SPLIT
On July 15, 1998, the Registrant distributed 4,207,887 shares of Common
Stock $.05 par value, in connection with a 2 for 1 stock split to record holders
as of June 30, 1998. 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 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, 1999 July 31, 1998 July 31, 1999 July 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Income available to Common Shareholders $ 634,936 $ 540,018 $ 339,066 $ 276,799
used in basic and diluted earnings per
Common Share
Denominator:
Weighted-average number of Common 6,952,998 6,929,108 6,981,842 6,973,543
Shares used in basic earnings per
Common Share *
Effect of diluted securities:
Common share options 344,946 462,332 283,121 437,660
----------- ----------- ----------- -----------
Weighted-average number of Common
Shares and diluted potential Common Shares
used in diluted earnings per Common Share 7,297,944 7,391,440 7,264,963 7,411,203
----------- ----------- ----------- -----------
Basic earnings per Common Share $ 0.09 $ 0.08 $ 0.05 $ 0.04
----------- ----------- ------------ -----------
Diluted earnings per Common Share $ 0.09 $ 0.07 $ 0.05 $ 0.04
----------- ----------- ------------ -----------
</TABLE>
* NOTE 600,000 ESOP shares have not been included in the weighted average number
of Common Shares - SEE NOTE F
NOTE D -- SEGMENT REPORTING
The Registrant sells telecommunication services to two distinct
segments: a retail segment, consisting primarily of small to medium size
businesses principally within the Northeastern United States, and a wholesale
segment, with sales to other telecommunications carriers throughout North
America and Europe.
In addition to direct costs, each segment is allocated a proportion of
the Registrant's switch and operating expenses. The allocation of expense is
based upon the minutes of use flowing through the Registrant's switch network.
There are no intersegment sales. Assets are held at the consolidated level and
are not allocable to the operating segments. The Registrant evaluates
performance on operating earnings of the two business segments.
-7-
<PAGE>
Summarized financial information concerning the Registrant's reportable
segments is shown in the following table:
<TABLE>
<CAPTION>
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
SIX MONTHS ENDED
JULY 31, 1999
Net Sales $35,842,764 $34,304,190 $70,146,954
Gross margin 11,344,352 3,103,245 14,447,597
Operating (loss) income (791,049) 1,900,629 1,109,580
SIX MONTHS ENDED
JULY 31, 1998
Net Sales $36,941,473 $28,496,964 $65,438,437
Gross margin 11,604,011 2,553,861 14,157,872
Operating income 134,035 644,753 778,788
</TABLE>
NOTE E -- COST OF SALES
The Registrant is involved in a number of billing disputes with suppliers that
arise in the normal course of business, as is common in the industry. The
Registrant records supplier invoices at full value and recognizes any cost
reduction upon written notification from the vendor that a credit will be
issued. The ultimate resolution of these disputes usually does not have an
adverse material effect on the operations of the Registrant. In the quarter
ended July 31, 1999, the Registrant received credit for approximately $606,000
from a major supplier. This credit covered disputes filed with the vendor for
the period March, 1996 to September, 1998 and was recorded as a reduction to
cost of sales.
The Registrant is currently involved in a billing dispute of up to approximately
$1,400,000, with another major supplier. The Registrant believes, based on
discussions with this supplier, that the Registrant's position will be accepted
and a full credit will be received. For this reason, no charge to cost of sales
has been recorded to date.
NOTE F -- EMPLOYEE STOCK OWNERSHIP PLAN
On September 1, 1998, the Company established to Total-Tel USA Communications,
Inc. Employee Stock, Ownership Plan (the "ESOP Plan"). Concurrently with the
establishment of the nonleveraged ESOP Plan, the company contributed 600,000
shares of its Common Stock to the ESOP Plan. The common shares were recorded at
fair value at the date contributed to the ESOP, totaling approximately $12.3
Million, with an offset to Unearned ESOP Shares in the Statement of
Shareholders' Equity. The ESOP Plan is administered through a trust by a trustee
as designated by the Board of Directors. No shares have been allocated from the
ESOP Plan as of July 31, 1999.
In February, 1999, the Company's Board of Directors authorized the termination
of the ESOP Plan.
THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK
-8-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain matters discussed in this Quarterly Report on Form 10-Q are
"forward-looking statements" intended to qualify for the safe harbor from
liability provided by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Registrant "believes",
"anticipates", "expects", or words of similar import. Similarly, statements
which describe the Registrant's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this Report. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this Report and the Registrant undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
YEAR 2000 MATTERS
As is the case with most other companies using computers in their
operations, the Registrant is in the process of addressing the year 2000 (Y2K)
issues. The Registrant believes it has a solid plan in place. Modifications,
such as software and hardware upgrades have been scheduled or are under
development/deployment for all Information Technology ("IT") and non-IT systems.
Specifically, the Registrant's review of its year 2000 compliance included the
Registrant's electronic data processing equipment, including all switches,
digital cross connects, and other date sensitive processors associated with the
Registrant's telecommunications network, back office, and billing and collection
systems. Any required modifications would be addressed concurrently with another
project to enhance the Registrant's billing system and should be completed by
the third calendar quarter of 1999. The total cost for the upgrades and
management overhead is estimated to be approximately $750,000, which has been
included in the Registrant's budget.
Despite the foregoing efforts and expenditures, there can be no
assurance that the Registrant will be able to identify all year 2000 issues in
its IT and non-IT systems in advance of their occurrence or that the Registrant
will be able to successfully remedy any such issues. Additionally, to the extent
that the Registrant's suppliers or customers fail to address year 2000 issues in
a timely and effective manner, the Registrant's ability to provide
uninterrupted, reliable service to customers serviced through its networks may
be adversely affected. In an effort to assess the foregoing risk, the Registrant
has been surveying all of its material customers and suppliers as to their
current state of year 2000 compliance. Based on the survey results, the
Registrant believes they are taking the steps necessary to ensure their
readiness.
The profitability and stability of the Registrant's customers may be
adversely affected by year 2000 issues not related to their relationships with
the Registrant. The expenses or liabilities to which the Registrant may become
subject as a result of any year 2000 issues, or the impact of year 2000 issues
on the ability of existing or future customers to do business with the
Registrant cannot be precisely determined, but could have a material adverse
effect on the Registrant's business, operating results and financial condition.
Overview
The Registrant is a regional facilities-based telecommunications
provider servicing both the commercial and wholesale marketplace. The Registrant
began offering interexchange telecommunications services in January, 1983. Gross
revenues have increased from approximately $30 million in the Fiscal year ended
January 31, 1995 to approximately $137 million in the Fiscal year ended January
31, 1999.
The Registrant has recently changed its business strategy to focus on
further penetration into the Northeastern USA market, rather than pursuing a
plan of national expansion previously announced. This decision led to a
restructuring of the Registrant's business, which eliminated sales offices in
Florida, Georgia, Virginia and the United Kingdom, as well as a switch in Miami,
Florida. Implementation of the new strategy is the principal contributor to the
net income of approximately $635,000 for the first half of the fiscal year ended
July 31, 1999.
-9-
<PAGE>
The Registrant currently owns and operates two long-distance switches,
one in New York City and the other in Newark, New Jersey. The Registrant also
has a Network Operating Center, (NOC) that monitors and controls its network.
The Registrant sells its services through three sales groups; a field retail
sales force, independent sales agents and a wholesale sales group.
The Registrant's principal expenses consist of cost of sales and
selling, general and administrative expenses, (SG&A). Cost of sales consist of
access fees, line installation expenses, operations expenses, switch expenses,
NOC expenses, depreciation, transport expenses and local and long-distance
expenses. SG&A expenses includes selling and marketing costs, customer service
and general and administrative costs.
Net sales were approximately $70,147,000 for the first six months of
the current fiscal year, an increase of approximately $4,709,000 or 7.2% as
compared to the approximately $65,438,000 recorded in the first six months of
the prior fiscal year. Net sales for the second quarter of the current fiscal
year were approximately $36,617,000, an increase of approximately $3,060,000, or
9.1%, as compared to the approximately $33,557,000 recorded in the second
quarter of the prior fiscal year. The increase came as a result of the expansion
of the wholesale customer base.
Wholesale revenue for the six month period increased to approximately
$34,304,000 an increase of approximately $5,807,000, or 20.4%. For the quarter
ending July 31, 1999 wholesale revenue was approximately $19,081,000, an
approximately $3,700,000, or 24.1% increase over the comparative quarter in the
last fiscal year. Wholesale minutes sold in the six month period ending July 31,
1999 increased to approximately 259,856,000 minutes, an increase of
approximately 98,279,000 minutes or 60.8%. Wholesale minutes sold in the quarter
ending July 31, 1999 increased to approximately 141,420,000 minutes, an increase
of approximately 51,674,000 minutes or 57.6%. The rate of revenue dollar growth
is incongruent to the rate of volume growth due the changing pricing environment
in the wholesale market place.
Retail revenues for the six month period decreased to approximately
$35,843,000 a decrease of approximately $1,099,000, or 3.0%. For the quarter
ending July 31, 1999, retail revenues were approximately $17,536,000, an
approximately $640,000 or 3.5% decrease over the comparative quarter in the last
fiscal year. Retail minutes sold in the six month period ending July 31, 1999
increased to approximately 346,285,000 minutes, an increase of approximately
35,517,000 minutes or 11.4%. Retail minutes sold in the quarter ending July 31,
1999 increased to approximately 170,573,000 minutes, an increase of
approximately 15,449,000 minutes, or 10.0%. The growth in the volume of minutes
sold is attributable to the Registrant's efforts to further penetrate the
metropolitan New York/New Jersey market and the overall growth in demand in the
telecommunications industry. The volume gains are offset by a drop in the
selling rate due to intense competition within the industry. The Registrant has
experienced a drop of approximately 1.5 cents per minute or 12.5% to an average
billing rate per minute of 10.5 cents for the current fiscal year. This rate
decrease equates to an approximately $5,320,000 reduction in retail sales. This
reduction was offset by the volume increases, equating to approximately
$4,221,000. These two factors combined make up the approximately $1,099,000
shortfall over the prior years six month revenue amount. Given the competitive
climate in the long distance telephone industry, there can be no assurance that
the trend in pricing will abate during the remainder of the fiscal year.
Cost of sales for the six-month period increased to approximately
$55,699,000, an increase of approximately $4,419,000, or 8.6%. For the quarter
ending July 31, 1999, cost of sales was approximately $29,170,000, an increase
of approximately $3,024,000 or 11.6% over the comparative quarter in the last
fiscal year. These changes were unfavorable in relation to the 7.2% increase in
the sales for the six month period and the 9.1% increase in the second quarter.
The increase in cost of sales was primarily due to the increased volume of
minutes sold, offset by the reduced buy rates, and reductions in the cost of the
switches and Network Operating Center. Included in the cost of sales is a credit
of approximately $606,000 received from one of the Registrant's suppliers to
settle disputes filed from March, 1996 to September, 1998 and recorded in the
second quarter. The gross margin for the current six months decreased to
approximately 20.6% as compared to approximately 21.6% for the first six months
of the prior fiscal year, and decreased to 20.3% from 22.1% 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 a
higher mix of the lower margin wholesale product to the higher margin retail
product. The retail to wholesale mix for the fiscal period ended July 31, 1999,
was 51% to 49%. In the comparative prior fiscal period, the retail to wholesale
mix was 56% to 44%.
Selling, general and administrative expense for the six month period
decreased to approximately $13,338,000 a decrease of approximately $41,000, or
0.3%. For the quarter ending July 31, 1999, selling, general and administrative
expense was approximately $6,857,000, an approximate $186,000, or 2.6% decrease
over the comparative quarter in the last fiscal year. The decrease for the six
month period was primarily comprised of savings in legal expenses of
approximately $838,000 resulting from the settlement of the Revision litigation;
reduced spending on consultants of approximately $277,000; savings
-10-
<PAGE>
realized in data processing services of approximately $67,000 from the
conversion to an in-house billing system; savings in travel related expenses of
approximately $69,000; and other net cost savings of approximately $29,000.
These cost savings were offset by increased spending of approximately $400,000,
on additional sales personnel to staff the new sales offices; increased
commission expense of approximately $210,000 due to increase in sales volumes;
increased cost of advertising and promotions of approximately $223,000;
increases in salaries, wages and benefits for MIS and administration of
approximately $337,000, required to upgrade the back office operations; and
additional depreciation expense of approximately $69,000. The decrease of
approximately $186,000 from the quarter ending July 31, 1998 to the quarter
ending July 31, 1999 was comprised primarily of savings in legal expenses of
approximately $608,000 resulting from the settlement of the Revision litigation,
reduced spending on consultants of approximately $250,000; savings realized in
data processing services of approximately $67,000 from the conversion to an
in-house billing system. These cost savings were offset by increased spending of
approximately $252,000 on additional sales personnel to staff the new sales
offices; the increased cost of advertising and promotion of approximately
$231,000; increases in sales commissions of approximately $112,000 due to
increases in sales volumes; increases in salaries, wages and benefits for MIS
and administration of approximately $95,000 and increased cost of depreciation
of approximately $49,000.
Total other expense for the current fiscal year was approximately
$46,000 as compared to approximately $93,000 of total other income recorded in
the prior fiscal year. Total other expense for the current fiscal quarter was
approximately $15,000 as compared to approximately $65,000 of total other income
recorded in the prior fiscal year. The approximate $139,000 change for the year
and approximate $80,000 for the quarter was primarily due to income derived from
prepaid debit cards which expired in the last fiscal year.
Diluted earnings per Common share increased to $.09 per share for the
current six months as compared to $.07 per share for the six months ended July
31, 1998, and increased to $.05 per share for the second quarter of the current
fiscal year as compared to $.04 for the quarter ended July 31, 1998.
Liquidity and Capital Resources
At July 31, 1999, the Registrant had working capital of approximately
$4,020,000, an increase of approximately $2,759,000 as compared to January 31,
1999. The ratio of current assets to current liabilities at July 31, 1999
increased to 1.2:1, over the ratio of 1.0:1 at January 31, 1999. The increase in
working capital at July 31, 1999 was primarily attributable to an increase in
net accounts receivable of approximately $2,780,000; an increase in prepaid
expenses and other current assets of approximately $843,000; an increase on the
value of securities available for sale of approximately $35,000; a decrease in
accrued accounts payable, accrued restructuring costs and other current and
accrued liabilities of approximately $1,751,000; decreases in salaries and wages
payable of approximately $77,000. This was offset by a decrease in cash and cash
equivalents of approximately $1,739,000, deferred taxes of approximately,
$923,000, an increase in the current portion of long term debt of approximately
$20,000 and a reduction in notes receivable of approximately $45,000. The
Registrant continues to maintain a strong liquid position.
The decrease in cash of approximately $1,739,000 was the result
primarily of the changes in assets and liabilities of approximately $5,097,000;
purchases of fixed assets of approximately $1,773,000 and the repayment of bank
borrowings of approximately $259,000. This was offset primarily by the exercise
of stock options of approximately $1,422,000, net earnings of approximately
$635,000, non-cash charges for depreciation and amortization of approximately
$1,236,000, doubtful accounts of approximately $374,000, write off of property
and equipment of approximately $1,510,000, non-cash compensation of
approximately $174,000 and collection of notes receivable of approximately
$45,000.
Capital Expenditures
Capital expenditures for the six-month period ending July 31, 1999 were
approximately $1,773,000. These expenditures were financed from funds provided
by operations. Approximately $627,000 was applicable to the purchase and
installation of the Registrant's Internet Service Provider (ISP) platform;
approximately $570,000 for the purchase of software and hardware necessary to
upgrade the Registrant's data processing network to include, among other
improvements, an in-house billing system; approximately $530,000 of upgrades to
the Newark and New York City switches, and approximately $46,000 for furniture
and fixtures for new sales offices in New York City, Long Island and New Jersey.
-11-
<PAGE>
Capital expenditures for the current fiscal year (ending January 31,
2000) are estimated to be $3,600,000. This includes the capital purchases of
$1,773,000 made through July 31, 1999. The additional spending includes amounts
for new products (including Internet services and DSL), switch site
improvements, switch expansion and upgrades, continued improvements to internal
information systems, and the cost to open additional sales offices. These
expenditures are planned to be financed through working capital, vendor
financing and additional lines of credit which the Registrant intends to
negotiate with its current lender or other sources.
As of July 31, 1999, the Registrant has a Revolving Credit Agreement
(the "Facility") with a major New Jersey bank. This Facility provides the
Registrant with an unsecured line of credit of $5,000,000. In addition, the
Registrant has drawn down $1,833,539 of a prior loan commitment at an interest
rate of 7.71% payable over five years.
THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK
-12-
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
ITEMS 1 - 5 Not applicable
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibit - 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three
months ended July 31, 1999.
</TABLE>
-13-
<PAGE>
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)
<TABLE>
<S> <C>
Date September 14, 1999 By /S/ Warren H. Feldman
---------------------------- ---------------------------------------
Warren H. Feldman, Esq., Chairman
Date September 14, 1999 By /S/ Dennis J. Spina
---------------------------- ---------------------------------------
President and Chief Executive Officer
Date September 14, 1999 By /S/ Salvatore M. Quadrino
---------------------------- ---------------------------------------
Vice President, Chief Financial Officer
and Principal Accounting Officer
Date September 14, 1999 By /S/ Thomas P. Gunning
---------------------------- ---------------------------------------
Thomas P. Gunning,
Vice President, Secretary/Treasurer
</TABLE>
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JULY 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JUL-31-1999
<CASH> 4,312,594
<SECURITIES> 584,679
<RECEIVABLES> 22,944,178
<ALLOWANCES> 1,381,633
<INVENTORY> 0
<CURRENT-ASSETS> 29,601,031
<PP&E> 23,393,582
<DEPRECIATION> 9,759,185
<TOTAL-ASSETS> 45,663,562
<CURRENT-LIABILITIES> 25,581,318
<BONDS> 1,286,788
<COMMON> 468,203
0
0
<OTHER-SE> 18,050,623
<TOTAL-LIABILITY-AND-EQUITY> 45,663,562
<SALES> 70,146,954
<TOTAL-REVENUES> 70,146,954
<CGS> 55,699,357
<TOTAL-COSTS> 55,699,357
<OTHER-EXPENSES> 12,964,427
<LOSS-PROVISION> 373,590
<INTEREST-EXPENSE> 78,322
<INCOME-PRETAX> 1,063,301
<INCOME-TAX> 428,365
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,936
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
