SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter ended June 30, 1996.
Commission File Number 0-13627.
COMPUTER TELEPHONE CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2731202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 Second Avenue, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 466-8080
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of July 25, 1996, 9,590,905 shares of Common Stock were outstanding.
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COMPUTER TELEPHONE CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of June 30 and March 31, 1996 3
Condensed Statements of Income
Three Months Ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows
Three Months Ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
SIGNATURES 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings Inapplicable
Item 2. Changes in Securities Inapplicable
Item 3. Default Upon Senior Securities Inapplicable
Item 4. Submission of Matters to a
Vote of Security Holders Inapplicable
Item 5. Other Information Inapplicable
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
(11) Statements Regarding Computation
of Per Share Earnings
Three Months ended
June 30, 1995 and 1994
</TABLE>
The Company did not file any reports on Form 8-K during the
three months ended June 30, 1996.
2
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COMPUTER TELEPHONE CORP
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 4,014,819 $ 3,941,876
Accounts receivable, net 8,153,628 6,557,229
Inventories 25,832 25,190
Prepaid expenses and other current assets 421,933 365,699
------------- -------------
Total Current Assets $ 12,616,212 $ 10,889,994
Furniture, Fixtures and Equipment 6,164,725 6,046,493
Less accumulated depreciation (4,981,755) (4,822,755)
------------- -------------
Total Equipment 1,182,970 1,223,738
Deferred tax asset 277,000 277,000
Other assets 117,285 118,485
------------- -------------
Total Assets $ 14,193,467 $ 12,509,217
============= =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,268,093 $ 1,176,804
Accrued salaries and related taxes 2,075,307 1,828,288
Accrued income taxes 149,400 0
Deferred revenue 10,829 9,302
------------- -------------
Total Current Liabilities 3,503,629 3,014,394
Stockholders' Equity
Common stock 95,849 95,841
Additional paid in capital 4,645,810 4,644,988
Retained-earnings 6,084,004 4,889,819
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10,825,663 9,630,648
Amounts due from stockholders (135,825) (135,825)
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Total Stockholders' Equity 10,689,838 9,494,823
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Total Liabilities and
Stockholders' Equity $ 14,193,467 $ 12,509,217
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
3
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COMPUTER TELEPHONE CORP
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1996 1995
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Revenue
<S> <C> <C>
Network service commission income $ 6,755,680 $ 5,856,699
Long distance usage income 2,251,781 1,048,576
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9,007,461 6,905,275
Costs and expenses
Cost of long distance network 1,681,855 827,844
Selling, general and administrative expenses 5,334,803 4,956,847
------------- -------------
7,016,658 5,784,691
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Income from operations 1,990,803 1,120,584
Other
Interest income 41,627 32,024
Interest expense (625) 0
Other 2,581 (8)
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43,583 32,016
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Income before income taxes 2,034,386 1,152,600
Provision for income taxes 840,200 463,350
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Net income $ 1,194,186 $ 689,250
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Net income per common share
Primary $ 0.11 $ 0.07
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Fully diluted $ 0.11 $ 0.07
============= =============
Weighted average number of common shares
Primary 10,981,028 10,269,960
============= =============
Fully diluted 10,981,028 10,344,639
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
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COMPUTER TELEPHONE CORP
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1996 1995
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OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,194,186 $ 689,250
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 159,000 138,000
Changes in noncash working capital items:
Accounts receivable (1,596,399) (971,478)
Inventories (642) 4,425
Other current assets (56,234) (57,734)
Other assets 1,200 1,200
Accounts payable 91,288 (65,613)
Accrued liabilities 247,019 327,520
Deferred revenue 1,527 (4,209)
Accrued taxes 149,400 (16,050)
------------- -------------
Net cash provided by operating activities 190,345 45,311
INVESTING ACTIVITIES
Additions to equipment (118,232) (99,614)
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Net cash used in investing activities (118,232) (99,614)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 830 0
------------- -------------
Net cash used by financing activities 830 0
Increase (decrease) in cash 72,943 (54,303)
Cash at beginning of year 3,941,876 2,390,546
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Cash and cash equivalents at end of period $ 4,014,819 $ 2,336,243
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
5
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COMPUTER TELEPHONE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include
all the information and footnote disclosures required by generally
accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. Operating results for the three months ended June 30,
1996 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1997. These statements
should be read in conjunction with the financial statements and
related notes included in the Company's Annual Report to
Shareholders on Form 10-K for the year ended March 31, 1996.
NOTE 2: CASH DIVIDENDS
The Company has not paid cash dividends during the period
presented.
NOTE 3: COMMITMENTS AND CONTINGENCIES
The Company is party to suits arising in the normal course of
business which either individually or in the aggregate are not
material.
NOTE 4. COMMON STOCK TRANSACTIONS SUBSEQUENT TO MARCH 31, 1996
On July 8, 1996, the Computer Telephone Corp. Employee Stock
Purchase Plan purchased 2,998 shares of Common Stock from
the Company at $11.05 for the purchase period ended June 30, 1996.
Through July 25, 1996, 3,018 shares of Common Stock were
issued as a result of employees exercising outstanding stock
options.
NOTE 5. NET INCOME PER SHARE
Net income per share is computed based on the weighted average
number of common stock and, if dilutive, common stock equivalent
shares outstanding during the period. Common equivalent shares
result from the assumed exercise of common stock options using the
treasury stock method. All income per share and weighted average
share information have been restated to reflect the 3-for-2 stock
split effective July 25, 1995 and the 2-for-1 stock split effective
October 23, 1995.
6
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Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Financial Statements and Notes set forth elsewhere in this Report.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 AS
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995.
Total revenues for the first quarter of Fiscal 1997 increased 30%
to approximately $9,007,000 as compared to approximately $6,905,000
for the same period of the preceding year (Fiscal 1996). Network
service commission income, which represents fees earned by the
Company in its capacity as an agent for various local and long
distance telephone companies, increased 15% to approximately
$6,756,000 as compared to approximately $5,857,000 for the first
quarter of Fiscal 1996. Long distance usage income, which
represents the gross billings to mid-sized commercial accounts on
the Company's long distance network, increased 115% to approximately
$2,252,000 as compared to approximately $1,049,000 for the same
period of the preceding year.
The increase in revenues is primarily attributable to a growing
base of business in the Northeast, where the Company is paid a
residual fee to actively manage a substantial group of customers on
behalf of NYNEX-New England, NYNEX-New York, and Southern New
England Telephone. The Company added account executives to secure
additional customers under these programs, and continued to
leverage these relationships by adding collateral products, such as
prepaid debit cards, conference calling, broadcast faxing, and
INTERNET access, in addition to our long distance products.
Selling, general, and administrative expenses increased
approximately 8% to $5,335,000 for the first quarter of Fiscal
1997 as compared to $4,957,000 for the first quarter of Fiscal
1996. This increase is attributable to the increase in variable
sales commission and bonus expenses incurred in connection with the
substantial increase in revenues. As a percentage of revenues,
these S,G & A expenses were approximately 59% for Fiscal 1997, as
compared to approximately 72% for Fiscal 1996, reflecting the
positive leverage effect of increased sales and the continuing
efforts by the Company to control operating expenses.
Operating income for the first quarter of Fiscal 1997 increased to
approximately $1,991,000, as compared to approximately $1,121,000 for
the same period of Fiscal 1996, an increase of 78%. Net income for
the quarter increased to approximately $1,194,000, as compared to
approximately $689,000, an increase of 73%. The Company will utilize
an effective tax rate of approximately 41% for Fiscal 1997.
The period ended June 30, 1996 marks the twelfth consecutive quarter
of profits for the Company. Management believes that its strategy
of building long term relationships and leveraging customer
opportunities, combined with continuing efforts to control costs,
should result in a continuation of this trend throughout Fiscal 1997.
7
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996 amounted to approximately
$9,113,000, as compared to $7,876,000 at March 31, 1996, an
increase of 16%. Cash balances at June 30, 1996 totaled
approximately $4,015,000.
On April 28, 1995, the Company amended its revolving line of credit
agreement with Fleet Bank, which is available under certain
conditions, to provide for an increase in the credit line to
$3,000,000 from $1,000,000 and to reduce the interest rate to the
prime rate from prime plus one-half percent. This line of credit
expires August 29, 1996 and the Company is currently negotiating
an updated credit facility.
The Company presently has no bank debt and expects that the
revolving credit line, together with cash flows from operations,
will be sufficient to meet the cash requirements of the Company for
the next twelve months.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf by the undersigned thereunto duly authorized.
COMPUTER TELEPHONE CORP.
Date: August 7, 1996 /S/ ROBERT FABBRICATORE
-------------------------
Robert Fabbricatore
Chairman and CEO
Date: August 7, 1996 /S/ JOHN D. PITTENGER
-----------------------
John D. Pittenger
Treasurer
9
Exhibit 11
COMPUTER TELEPHONE CORP
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1996 1995
------------- -------------
PRIMARY
<S> <C> <C>
Average shares outstanding 9,585 $ 9,348
Net effect of stock options, if dilutive,
based on the treasury stock method
using the average market price 1,396 921
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Total 10,981 10,269
Net income $ 1,194 $ 689
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Net income per share $ 0.11 0.07
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FULLY DILUTED
Average shares outstanding 9,585 $ 9,348
Net effect of stock options, if dilutive,
based on the treasury stock method
using the period-end market price 1,396 996
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Total 10,981 10,344
Net income $ 1,194 $ 689
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Net income per share $ 0.11 0.07
------------- -------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 4,015
<SECURITIES> 0
<RECEIVABLES> 8,154
<ALLOWANCES> 190
<INVENTORY> 26
<CURRENT-ASSETS> 422
<PP&E> 6,165
<DEPRECIATION> 4,982
<TOTAL-ASSETS> 14,193
<CURRENT-LIABILITIES> 3,504
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 10,730
<TOTAL-LIABILITY-AND-EQUITY> 14,193
<SALES> 9,007
<TOTAL-REVENUES> 9,044
<CGS> 1,682
<TOTAL-COSTS> 7,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 2,034
<INCOME-TAX> 840
<INCOME-CONTINUING> 1,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,194
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
