<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, 2000
--------------------------
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>
<S> <C>
Class Outstanding at September 14, 2000
---------------------------- ---------------------------------
Common Share, $.05 par value 7,944,071 shares
</TABLE>
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
SECOND QUARTER REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statements of Operations and
Comprehensive (Loss) Income
Six months ended July 31, 2000 and 1999 (unaudited) and three
months ended July 31, 2000 and 1999 (unaudited) 2
Condensed Consolidated Balance Sheets
July 31, 2000 (unaudited), and January 31, 2000 3-4
Condensed Consolidated Statements of Cash Flows Six months ended
July 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
PART II. OTHER INFORMATION
Items 1-5 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, July 31,
-------- --------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
NET SALES $65,900,505 $70,146,954 $34,108,643 $36,616,906
----------- ----------- ----------- -----------
Costs and Expenses
Cost of Sales 57,058,483 55,699,357 30,606,448 29,169,672
Access Charge Settlement (Note G) (1,264,483) - (1,264,483) -
Selling, general and administrative 13,117,319 13,338,017 6,171,648 6,856,747
----------- ----------- ----------- -----------
Total costs and expenses 68,911,319 69,037,374 35,513,613 36,026,419
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (3,010,814) 1,109,580 (1,404,970) 590,487
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Income 88,586 36,436 40,586 13,313
Other Income (Expense) 32,592 (4,393) 25,280 10,011
Interest Expense (56,355) (78,322) (27,100) (37,880)
----------- ----------- ----------- -----------
Total Other Income (Expense) 64,823 (46,279) 38,766 (14,556)
----------- ----------- ----------- -----------
(Loss) Income before Provision for
(Benefit from) Income Taxes (2,945,991) 1,063,301 (1,366,204) 575,931
(Benefit from) Provision for Income Taxes (65,676) 428,365 - 236,865
----------- ----------- ----------- -----------
NET (LOSS) INCOME (2,880,315) 634,936 (1,366,204) 339,066
Other Comprehensive Income, net of taxes:
Unrealized holding gain (loss) 22,028 19,521 23,309 (3,396)
----------- ----------- ----------- -----------
COMPREHENSIVE (LOSS) INCOME (2,858,287) 654,457 $(1,342,895) $ 335,670
=========== =========== =========== ===========
BASIC (LOSS) EARNINGS PER COMMON SHARE $ (0.40) $ 0.09 $ (0.19) $ 0.05
----------- ----------- ----------- -----------
DILUTED (LOSS) EARNINGS PER COMMON SHARE $ (0.40) $ 0.09 $ (0.19) $ 0.05
----------- ----------- ----------- -----------
DIVIDENDS PER SHARE NONE NONE NONE NONE
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
2000 2000
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,274,825 $ 4,374,479
Investments available for sale 574,129 549,580
Accounts receivable, net 21,833,295 23,662,457
Prepaid expenses and other current assets 1,001,572 2,565,031
------------ ------------
TOTAL CURRENT ASSETS 27,683,821 31,151,547
------------ ------------
PROPERTY AND EQUIPMENT, NET 14,087,192 13,316,655
------------ ------------
OTHER ASSETS:
Deferred line installation costs, net 244,621 280,281
Other assets 581,765 435,639
------------ ------------
826,386 715,920
------------ ------------
$ 42,597,399 $ 45,184,122
============ ============
</TABLE>
NOTE: The balance sheet at January 31, 2000 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
(Continued)
3
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
2000 2000
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 591,603 $ 568,653
Accounts payable 25,545,297 24,802,097
Accrued restructuring costs - 11,995
Other current and accrued liabilities 2,947,503 3,073,937
Salaries and wages payable 1,309,223 1,472,766
------------ ------------
TOTAL CURRENT LIABILITIES 30,393,626 29,929,448
------------ ------------
OTHER LONG-TERM LIABILITIES 232,663 250,532
------------ ------------
LONG-TERM DEBT 695,121 997,171
------------ ------------
SHAREHOLDERS' EQUITY
Common Stock 474,196 474,466
Additional paid-in-capital 29,838,069 29,710,494
Accumulated deficit (5,536,530) (2,656,215)
------------ ------------
24,775,735 27,528,745
Unearned ESOP Shares (12,225,000) (12,225,000)
Treasury stock (1,458,550) (1,458,550)
Accumulated other comprehensive income 183,804 161,776
------------ ------------
Total Shareholders' Equity 11,275,989 14,006,971
------------ ------------
$ 42,597,399 $ 45,184,122
============ ============
</TABLE>
NOTE: The balance sheet at January 31, 2000 has been taken from
the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
4
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
--------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings $(2,880,315) $ 634,936
Adjustment for non-cash charges 2,652,167 3,279,171
Gain on disposal of property and equipment (1,975) --
Changes in assets and liabilities 2,778,243 (5,097,072)
----------- -----------
Net cash provided by (used in) operating activities 2,548,120 (1,182,965)
----------- -----------
INVESTING ACTIVITIES:
Collection on notes receivable -- 45,402
Purchase of property and equipment (2,352,150) (1,773,162)
Proceeds on sale of fixed assets 1,975 23,909
Additions to deferred line installation costs (18,499) (15,961)
----------- -----------
Net cash used in investing activities (2,368,674) (1,719,812)
----------- -----------
FINANCING ACTIVITIES:
Exercise of stock options -- 1,422,185
Repayments of bank borrowings (279,100) (258,706)
----------- -----------
Net cash (used in) provided by financing activities (279,100) 1,163,479
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (99,654) (1,739,298)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,374,479 6,051,892
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,274,825 $ 4,312,594
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 56,355 $ 78,322
Income taxes $(1,643,227) $ 3,400
</TABLE>
See notes to condensed consolidated financial statements.
5
<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, 2000. 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, 2000 are not necessarily indicative of the results that may be
expected for the year ending January 31, 2001.
NOTE B--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," in June 1998 was
amended by SFAS No. 137 and is effective for fiscal years beginning after June
2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain instruments embedded in other
contracts, and hedging activities. Management does not believe that this
pronouncement will have any material impact on the financial position and
results of operations of the Company as it does not engage in these activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements",
which must be adopted by March 31,2000. At this time, management has determined
that the implementation of SAB 101 will not have any effect on the Company's
financial position and results of operations.
NOTE C--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
(loss) earnings per common share:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
(Loss) Earnings available to $(2,880,315) $ 634,936 $(1,366,204) $ 339,066
Common Shareholders used in basic
and diluted (loss) earnings per Common Share
Denominator:
Weighted-average number of Common 7,299,825 6,952,998 7,305,195 6,981,842
Shares used in basic (loss) earnings per
Common Share (1)
Effect of diluted securities:
Common share options (2) - 344,946 - 283,121
----------- ---------- ----------- -----------
Weighted-average number of Common 7,299,825 7,297,944 7,305,195 7,264,963
----------- ---------- ----------- -----------
Shares and diluted potential Common Shares
used in diluted (loss) earnings per Common Share
Basic (loss) earnings per Common Share $(0.40) $0.09 $(0.19) $0.05
------ ----- ------ -----
Diluted (loss) earnings per Common Share $(0.40) $0.09 $(0.19) $0.05
------ ----- ------ -----
</TABLE>
(1) 600,000 ESOP shares have not been included in the weighted average number of
Common Shares - See Note E
(2) Common Share options are not included in the calculation of diluted loss per
Common Share as doing so would be antidilutive due to the net loss
6
<PAGE>
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 the World.
In addition to direct costs, each segment is allocated a portion 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.
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, 2000
Net Sales $29,274,332 $36,626,173 $65,900,505
Gross margin 7,432,511 2,673,994 10,106,505
Operating (loss) income (3,971,611) 960,797 (3,010,814)
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
</TABLE>
NOTE E--EMPLOYEE STOCK OWNERSHIP PLAN
On September 1, 1998, the Registrant established the TotalTel USA
Communications, Inc. Employee Stock Ownership Plan (the "ESOP Plan").
Concurrently with the establishment of the non-leveraged ESOP Plan, the
Registrant 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, 2000.
In February 1999, the Registrant's Board of Directors authorized the
termination of the ESOP Plan. The IRS has recently given its approval to
terminate the ESOP, and the Registrant is in process of doing so.
NOTE F--STOCK OPTION REPRICING
On February 23, 2000, the Board of Directors passed a resolution
allowing the Registrant to re-price all outstanding options granted under its
1996 and 1999 Stock Option Plans. All outstanding options at prices ranging from
$14.63 to $21.50 per share were re-priced to $14.25 per share. All other terms
and conditions, including vesting periods remained unchanged. The Registrant has
applied FASB Interpretation No.44 "Accounting for Certain Transactions Involving
Stock Compensation" related to stock option repricing. During the six months
ended July 31, 2000, there has been no financial statement impact based on the
market values of the Registrant's common shares.
NOTE G--ACCESS CHARGE SETTLEMENT
In the second quarter of the current fiscal year, the Registrant
received a cash payment of $1,264,483 from certain Bell Companies in settlement
of a class action suit, of which the Registrant was a party to, filed in 1992
relating to overcharges by those companies. The settlement concluded the class
action with the Bell Companies. The Registrant's portion of the settlement was
not determined until the second quarter ended July 31, 2000. The cash payment
was recorded as a separate line item as a reduction of costs and expenses in
the current quarter.
7
<PAGE>
NOTE H--INCOME TAXES
For the fiscal year ended January 31, 2000, the Registrant established
a valuation allowance against its net deferred tax asset due to the uncertainty
of realizing certain tax credits and loss carryforwards. In the quarter ended
July 31, 2000, the Registrant continued this accounting treatment and recorded
a full valuation allowance against the net tax benefit arising from the
quarter's net operating loss. The result is that the net deferred tax asset of
$4,915,349 is fully offset by the valuation allowance, and as such does not
appear as an asset on the balance sheet. It will be reflected at full value when
the net deferred tax asset can be utilized in future periods.
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.
Overview
The Registrant is a regional facilities-based telecommunications
provider servicing both the retail and wholesale marketplace. The Registrant
began offering interexchange telecommunications services in January, 1983. Gross
revenues were approximately $140 million in the Fiscal year ended January 31,
2000.
The Registrant currently owns and operates two long-distance switches,
located in New York City and 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 agents and a wholesale sales team.
The Registrant's principal expenses consist of cost of sales and
selling, general and administrative (S,G&A) expenses. Cost of sales consist of
access fees, line installation expenses, switch expenses, NOC expenses,
depreciation, transport expenses, and local and long-distance expenses. S, G & A
expenses are comprised of selling and marketing costs, and general and
administrative costs.
Results of Operations
Net sales were approximately $65,901,000 for the first six months of
the current fiscal year, a decrease of approximately $4,246,000 or 6.1% as
compared to the approximately $70,147,000 recorded in the first six months of
the prior fiscal year. Net sales for the second quarter of the current fiscal
year were approximately $34,109,000, a decrease of approximately $2,508,000 or
6.9% as compared to the approximately $36,617,000 recorded in the second quarter
of the prior fiscal year.
Wholesale revenue for the six-month period increased to approximately
$36,626,000 an increase of approximately $2,322,000 or 6.8%. For the quarter
ended July 31, 2000, wholesale revenue was approximately $20,194,000, an
approximately $1,113,000 or 5.8% increase over the comparative quarter in the
last fiscal year. Wholesale minutes sold in the six-month period ended July 31,
2000 were approximately 294,290,000 minutes, an increase of approximately
32,434,000 minutes or 12.4%. Wholesale minutes sold in the quarter ended July
31, 2000 were approximately 160,285,000 minutes, an increase of approximately
18,865,000 minutes or 13.3%. The rate of revenue growth does not parallel the
rate of volume growth due to the reduction of prices found in the competitive
wholesale market place.
Retail revenues for the six-month period were approximately
$29,274,000, a decrease of approximately $6,568,000 or 18.3%. For the quarter
ended July 31, 2000, retail revenues were approximately $13,915,000, an
approximately $3,621,000 or 20.7% decrease over the comparative quarter in the
last fiscal year. Retail minutes sold in the six month period ended July 31,
2000 were approximately 314,934,000 minutes, a decrease of approximately
31,351,000 minutes or 9.1%. Retail minutes sold in the quarter ended July 31,
2000 were approximately 151,008,000 minutes, a decrease of approximately
19,565,000 minutes, or 11.5%. The decrease in volume is attributed to the
intense competition within the industry. The Registrant has experienced a
9
<PAGE>
reduction of approximately 1.1 cents per minute or 10.6% to an average billing
rate per minute of 9.3 cents during the current fiscal year. This rate decrease
equates to an approximately $3,323,000 reduction in retail sales. The volume
decrease equates to an approximately $3,245,000 reduction in retail revenues.
These two factors combined make up the approximately $6,568,000 shortfall over
the prior year's six month revenue. Given the competitive climate in the long
distance telephone industry, there can be no assurance that the trend will abate
during the remainder of the fiscal year.
Cost of sales for the current six-month period was approximately
$57,058,000, an increase of approximately $1,359,000 or 2.4%. For the quarter
ended July 31, 2000, cost of sales was approximately $30,606,000, an increase of
approximately $1,436,000 or 4.9% over the comparative quarter in the last fiscal
year. These changes were unfavorable in relation to the 6.1% decrease in sales
for the six-month period and the 6.9% decrease in the second quarter. The
increase in cost of sales was primarily due to the increased volume of wholesale
minutes sold, offset by the reduced retail volumes and reduced buy rates, The
gross margin, excluding the access charge settlement for the current six-month
period decreased to approximately 13.4% as compared to approximately 20.6% for
the first six months of the prior fiscal year, and decreased to 10.3% from 20.3%
for the second quarter of the current fiscal year as compared to the second
quarter compared of the prior fiscal year. These decreases in the gross margins
are reflective of a higher mix of lower margin wholesale product compared to the
higher margin retail product, and the continued decrease in the retail selling
prices. The retail to wholesale mix for the six months ended July 31, 2000, was
44% to 56%. In the comparative prior fiscal period, the retail to wholesale mix
was 51% to 49%.
In the second quarter of the current fiscal year the Registrant
received a cash payment of $1,264,483 from certain Bell Companies in settlement
of a class action suit filed in 1992 relating to overcharges by those companies.
The settlement concluded the class action with the Bell Companies. The cash
payment was recorded as a reduction of line costs in the quarter.
Selling, general and administrative expense for the six-month period
decreased to approximately $13,117,000 a decrease of approximately $221,000, or
1.7%. For the quarter ended July 31, 2000, selling, general and administrative
expense was approximately $6,172,000, and approximately $685,000, or a 10.0%
decrease over the comparative quarter in the last fiscal year. The decrease of
approximately $221,000 for the six month period was primarily comprised of
savings in commission expense of approximately $664,000 due to the reduced sales
volumes; a decrease in salaries, wages and fringe benefits of approximately
$183,000 due to headcount reductions; and reduced advertising, promotion and
selling expenses of approximately $347,000.This was offset by an increase in the
provision for doubtful accounts of approximately $490,000 for certain wholesale
business; an increase in depreciation expense of approximately $222,000; an
increase in consulting fees of approximately $144,000 and an increase in other
S,G & A expenses of approximately $117,000. The decrease of approximately
$685,000 during the quarter ended July 31, 2000 as compared to the quarter ended
July 31, 1999 was comprised primarily of savings in commission expense of
approximately $422,000 due to reduced sales volume; reduced legal expenses of
approximately $188,000; reduced spending on advertising, promotion and selling
expense of approximately $256,000; a decrease of salaries, wages and fringes of
approximately $159,000 due to reduced headcount; and net savings on other
expenses of approximately $33,000. These cost savings were offset by increases
of approximately $119,000 in depreciation expense; increase in the provision for
doubtful accounts of approximately $98,000; and increased spending on
consultants of approximately $156,000.
Total other income for the current six-month period was approximately
$65,000 as compared to approximately $46,000 of total other expense recorded in
the prior year six-month period. Total other income for the current fiscal
quarter was approximately $39,000 as compared to approximately $15,000 of total
other expense recorded in the comparable period during the prior fiscal year.
The approximately $111,000 change for the six month period and approximately
$54,000 for the quarter was primarily due to reduced interest expense and
increased interest income.
For the reasons described above, the operating loss for the six-month
period ended July 31, 2000 was approximately $3,011,000, a decrease of
approximately $4,121,000 from the six-month period ended July 31, 1999. The
operating loss for the three-month period ended July 31, 2000 was approximately
$1,405,000, a decrease of approximately $1,995,000 from the three-month period
ended July 31, 1999.
Diluted loss per Common share was $.40 per share for the current
six-month period ended July 31, 2000 as compared to $.09 earnings per share for
the six-months ended July 31, 1999. Diluted loss per Common share was $.19 per
share for the current three-month period ended July 31, 2000 as compared to $.05
earnings per share for the three-months ended July 31, 1999.
10
<PAGE>
Liquidity and Capital Resources
At July 31, 2000, the Registrant had negative working capital of
approximately $2,710,000, a decrease of approximately $3,932,000 as compared to
January 31, 2000. The ratio of current assets to current liabilities at July 31,
2000 decreased to 0.9:1, from the ratio of 1.0:1 at January 31, 2000. The
decrease in working capital at July 31, 2000 was primarily attributable to a
decrease in net accounts receivable of approximately $1,829,000; a decrease in
current income taxes receivable of approximately $1,578,000; an increase in
accounts payable of approximately $743,000; a decrease in cash and cash
equivalents of approximately $100,000; and an increase in the current portion of
long term debt of approximately $23,000. This was offset by a decrease in
accrued liabilities of approximately $302,000; an increase in the value of
investments available for sale of $25,000 and an increase in prepaid expenses of
approximately $14,000.
The decrease in cash of approximately $100,000 was the result primarily
of the net loss of approximately $2,880,000; purchases of fixed assets of
approximately $2,352,000; the repayment of bank borrowings of approximately
$279,000; and additions to deferred line installation costs of approximately
$19,000. This was offset by non-cash charges for depreciation and amortization
of approximately $1,635,000; doubtful accounts of approximately $863,000;
non-cash compensation of approximately $154,000; and the net change in assets
and liabilities of approximately $2,778,000.
Capital Expenditures
Capital expenditures for the six-month period ended July 31, 2000 were
approximately $2,352,000. These expenditures were financed from funds provided
by operations and working capital. The major expenditures were for expansion and
upgrades of the New York switch site of approximately $1,060,000; the purchase
of an Oracle software license of approximately $376,000; the purchase of a
generator for the Newark, NJ switch site of approximately $165,000; the building
of an E-commerce platform for approximately $177,000; approximately $325,000 for
new P.C.'s, and hardware and software upgrades to the LAN and the balance was
for a trade show booth, furniture and fixtures. Planned spending for fiscal 2000
totals approximately $2,800,000. The remaining expenditures are slated for data
warehousing, customer equipment, 800 redundancy and additional upgrades to the
switches and LAN/WAN network. 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.
The Registrant has a loan commitment from Gold and Appel Transfer SA, a
principal shareholder of the Registrant, for $15,000,000 at an interest rate of
11 1/2%. The Registrant is also currently negotiating with a major New Jersey
bank for a new line of credit. The Registrant has drawn down $1,286,724 of a
prior loan commitment at an interest rate of 7.71% payable over five years.
Market Risk
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices. The Registrant's cash and
investments exceed long-term debt; therefore, the exposure to interest rate risk
relates primarily to the marketable securities held by the Registrant. The
Registrant only invests in instruments with high credit quality for which a
secondary market exists. The Registrant does not hold any derivatives related to
its interest rate exposure. The Registrant also maintains long-term debt at
fixed rates. Due to the nature and amounts of the Registrant's note payable, an
immediate 10% change in interest rates would not have a material effect in the
Registrant's results of operations over the next fiscal year. The Registrant's
exposure to adverse changes in foreign exchange rates is also immaterial to the
consolidated statements as a whole.
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11
<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, 2000.
</TABLE>
12
<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, 2000 By /S/ A. John Leach
---------------------------- -------------------------------------------
A. John Leach
President and Chief Executive Officer
Date September 14, 2000 By /S/ Thomas P. Gunning
---------------------------- -------------------------------------------
Thomas P. Gunning,
Vice President, Chief Financial Officer and
Principal Accounting Officer
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13
