SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
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For Quarter ended September 30, 1995.
Commission File Number 0-13627.
COMPUTER TELEPHONE CORP.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2731202
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 Second Avenue, Waltham, Massachusetts 02154
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(Address of principal executive offices) (Zip Code)
(617) 466-8080
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(Registrant's telephone number including area code)
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(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
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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 October 24, 1995, 9,436,334 shares of $.01 par value Common Stock were
outstanding.
COMPUTER TELEPHONE CORP.
FORM 10-Q
INDEX
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of September 30 and March 31, 1995 3
Condensed Statements of Income
Three Months Ended September 30, 1995 and 1994 4
Condensed Statements of Income
Six Months Ended September 30, 1995 and 1994 5
Condensed Statements of Cash Flows
Six Months Ended September 30, 1995 and 1994 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
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 and Six Months ended
September 30, 1995 and 1994 11
The Company did not file any reports on Form 8-K during the six months ended
September 30, 1995.
2
COMPUTER TELEPHONE CORP
CONDENSED BALANCE SHEETS
September 30, March 31,
1995 1995
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ASSETS
Current Assets
Cash and cash equivalents $ 3,321,183 $ 2,390,546
Accounts receivable, net 5,167,674 3,639,220
Inventories 26,471 36,512
Prepaid expenses and other current assets 418,075 353,381
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Total Current Assets 8,933,403 6,419,659
Furniture, Fixtures and Equipment 5,603,119 5,287,289
Less accumulated depreciation (4,448,417) (4,162,417)
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Total Equipment 1,154,702 1,124,872
Deferred tax asset 153,000 153,000
Other Assets 25,885 28,285
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Total Assets $ 10,266,990 $ 7,725,816
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 815,539 $ 456,094
Accrued salaries and related taxes 2,179,533 1,445,937
Accrued income taxes 40,219 281,569
Deferred revenue 0 4,209
Customer deposits 12,412 12,412
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Total Current Liabilities 3,047,703 2,200,221
Stockholders' Equity
Common stock 47,246 31,244
Additional paid in capital 4,888,082 4,871,302
Retained-earnings 2,433,644 796,734
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7,368,972 5,699,280
Amounts due from stockholders (135,825) (159,825)
Less treasury stock, at cost (13,860) (13,860)
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Total Stockholders' Equity 7,219,287 5,525,595
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Total Liabilities and
Stockholders' Equity $ 10,266,990 $ 7,725,816
============= ==============
The accompanying notes are an integral part of these financial statements.
3
COMPUTER TELEPHONE CORP
CONDENSED STATEMENTS OF INCOME
Three Months Ended
September 30, September 30,
1995 1994
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Revenue
Network service commission income $ 6,774,329 $ 4,649,927
Long distance usage income 1,296,139 747,550
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8,070,468 5,397,477
Costs and expenses
Cost of long distance network 994,229 572,547
Selling, general and administrative expenses 5,526,344 4,324,431
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6,520,573 4,896,978
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Income from operations 1,549,895 500,499
Other
Interest income 35,548 3,765
Interest expense (569) (1,382)
Other 9,126 3,086
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44,105 5,469
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Income before income taxes 1,594,000 505,968
Provision for income taxes 645,500 173,000
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Net income $ 948,500 $ 332,968
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Net income per common share
Primary $ 0.18 $ 0.08
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Fully diluted $ 0.18 $ 0.08
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Weighted average number of common shares
Primary 5,260,535 4,240,223
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Fully diluted 5,287,773 4,291,852
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The accompanying notes are an integral part of these financial statements.
4
COMPUTER TELEPHONE CORP
CONDENSED STATEMENTS OF INCOME
Six Months Ended
September 30, September 30,
1995 1994
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Revenue
Network service commission income $ 12,441,755 $ 8,522,167
Long distance usage income 2,344,715 1,294,016
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14,786,470 9,816,183
Costs and expenses
Cost of long distance network 1,816,191 1,021,847
Selling, general and administrative expenses 10,299,801 8,098,818
12,115,992 9,120,665
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Income from operations 2,670,478 695,518
Other
Interest income 67,572 23,261
Interest expense (569) (3,417)
Other 9,119 5,706
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76,122 25,550
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Income before income taxes 2,746,600 721,068
Provision for income taxes 1,108,850 251,500
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Net income $ 1,637,750 $ 469,568
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Net income per common share
Primary $ 0.32 $ 0.11
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Fully diluted $ 0.31 $ 0.11
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Weighted average number of common shares
Primary 5,197,785 4,117,056
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Fully diluted 5,230,073 4,216,695
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The accompanying notes are an integral part of these financial statements.
5
COMPUTER TELEPHONE CORP
CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended
September 30, September 30,
1995 1994
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OPERATING ACTIVITIES
Net Income $ 1,637,750 $ 469,568
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 286,000 315,000
Changes in noncash working capital items:
Accounts receivable (1,532,663) (978,906)
Inventories 10,041 (2,594)
Other current assets (64,694) 59,864
Income tax receivable 0 50,000
Other assets 2,400 (250,473)
Accounts payable 359,445 346,756
Accrued liabilities 733,596 140,068
Accrued taxes (241,350) 111,540
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Net cash provided by operating activities 1,190,525 260,823
INVESTING ACTIVITIES
Additions to equipment (315,830) (429,499)
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Net cash used in investing activities (315,830) (429,499)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 56,782 13,992
Dividends Paid (840) 0
Repayment of capital lease obligations 0 (6,973)
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Net cash used by financing activities 55,942 7,019
Increase (decrease) in cash 930,637 (161,657)
Cash at beginning of year 2,390,546 1,238,811
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Cash and cash equivalents
at end of period $ 3,321,183 $ 1,077,154
============ =============
The accompanying notes are an integral part of these financial statements.
6
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 and six months ended September
30, 1995 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1996. 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, 1995.
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
JUNE 30, 1995
On July 5, 1995, the Computer Telephone Corp. Employee Stock Purchase Plan
purchased 2,337 shares of Common Stock from the Company at $9.775 for the
purchase period ended June 30, 1995.
On July 13,1995, the Board of Directors approved a 3-for-2 Stock Split payable
to shareholders of Record on July 25, 1995. A total of 1,560,554 shares of
common stock were issued in connection with the split.
On October 10, 1995, the Board of Directors approved a 2-for-1 Stock Split
payable to shareholders of record on October 23, 1995. A total of 4,718,172
shares of common stock were issued in connection with the split.
Through October 23, 1995, 40,856 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 stock shares result from the assumed exercise of common stock
options using the treasury stock method.
7
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 and six months ended September 30, 1995 as
compared to the three months and six months ended September 30, 1994.
Total revenues for the second quarter of Fiscal 1996 increased 50% to
approximately $8,070,000 as compared to approximately $5,397,000 for the same
period of the preceding year (Fiscal 1995). 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 46%, to
approximately $6,774,000 for the three months ended September 30, 1995, as
compared to approximately $4,650,000 for the second quarter of Fiscal 1995. Long
distance usage income, which represents the gross billings to mid-sized
commercial accounts on the Company's long distance network, increased 73% to
approximately $1,296,000 as compared to approximately $748,000 for the same
period of the preceding Fiscal year.
Total revenues for the six month period ended September 30, 1995 increased 51%
to approximately $14,786,000 as compared to approximately $9,816,000 for the
same period of Fiscal 1995. Network service commission income increased 46% to
approximately $12,442,000 as compared to $8,522,000 for the same period of the
preceding fiscal year. For the six month period, the Company recognized long
distance usage income of $2,345,000 as compared to $1,294,000 for the same
period of Fiscal 1995, an increase of 81%.
These increases in revenues are primarily attributable to a growing base of
customers 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 in Connecticut. This growth
in the Company's customer relationships is directly attributable to the account
executives added during the first six months of calendar 1995.
In addition, the Company has further developed its strategy of leveraging these
relationships with additional product offerings, which primarily involve long
distance products, but also include conference calling, broadcast fax, prepaid
calling cards, and in early 1996, wireless communications with the GEOTEK
product line.
Selling, general, and administrative expenses increased approximately 28% to
$5,526,000 for the second quarter of Fiscal 1996 as compared to $4,324,000 for
the second quarter of Fiscal 1995. For the six month period ended September 30,
8
1995, selling, general and administrative expenses increased approximately 27%
to $10,300,000, as compared to $8,099,000 for the same period in the preceding
Fiscal year. These increases are directly attributable to the increases in the
variable sales commission and bonus expenses incurred in connection with the
substantial increase in revenues. As a percentage of revenues, these selling,
general and administrative expenses were approximately 68% and 70% respectively,
for the three and six month periods of Fiscal 1996, as compared to 80% and 83%
respectively, for the corresponding periods of Fiscal 1995. These relative
reductions reflect the continuing efforts by the Company to control operating
expenses, as well as the financial impact of increasing sales opportunities to
the same customer base.
Operating income for the second quarter of Fiscal 1996 increased to
approximately $1,150,000, as compared to approximately $500,000 for the same
period of Fiscal 1995. For the six months ended September 30, 1995, operating
income increased to approximately $2,670,000 as compared to approximately
$696,000 for the same six month period of Fiscal 1995. The Company estimates
that it will utilize an effective tax rate of approximately 40% for the balance
of Fiscal 1996.
On July 13, 1995, the Company announced a 3-for-2 stock split, effective as of
July 25, 1995. On January 18, 1995, the Company declared a twenty-five percent
stock dividend, effective as of March 1, 1995. All income per share an weighted
average share information included in the accompanying financial statements have
been restated to reflect these changes.
On October 10, 1995, the Company announced a 2-for-1 stock split, effective
October 23, 1995. This brings the total of shares outstanding to 9,436,344.
The period ended September 30, 1995 marks the ninth consecutive quarter of
profits for the Company. Management believes that its strategy of building long
term relationships and offering additional products to these same customers,
when combined with continuing efforts to control costs, should result in a
continuation of this trend throughout the balance of Fiscal 1996.
9
Liquidity and Capital Resources
Working capital at September 30, 1995 amounted to approximately $5,886,000, as
compared to $4,219,000 at March 31, 1995, an increase of 40%. Cash balances at
September 30, 1995 totaled approximately $3,321,000, an increase of
approximately $985,000 over the June 30, 1995 balance.
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.
In addition, the Company entered into an agreement with Fleet Bank which
provides up to $500,000 of term financing for capital expenditures at the prime
rate of interest plus one percent.
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 foreseeable future.
10