SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 0-9040
METRO TEL CORP.
-----------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
--------- ----------
(State of other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
----------------------------------------
(Address of principal executive offices)
(305) 754-4551
--------------
(Issuer's telephone number)
250 S. Milpitas Blvd., Milpitas, CA 95035
(Former address of principal executive offices)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
-- --
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: Common Stock, $.025 par
value per share - 6,875,000 shares outstanding as of November 12, 1998.
<PAGE>
Metro Tel Corp.
Statement of Operations
(Unaudited, Notes A and C)
<TABLE>
<CAPTION>
For the three months
ended September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $963,683 $1,046,628
Cost of goods sold 612,265 633,406
---------- ----------
Gross profit 351,418 413,222
Selling, general and
administrative expenses 274,034 311,323
Research and development 57,660 56,129
Interest and other income (2,259) (2,785)
---------- ---------
329,435 364,667
Earnings before provision
for income taxes 21,983 48,555
Provision for income taxes 8,794 19,400
---------- ---------
Net earnings $ 13,189 $ 29,155
========== =========
Basic and diluted
earnings per share (Note B) $ .01 $ .01
========== =========
Weighted average number
of shares outstanding,
basic and diluted (Note B) 2,054,046 2,054,046
========= =========
</TABLE>
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<PAGE>
Balance Sheets
(Unaudited, Notes A and C)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1998 1998
------------ ------------
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 473,661 $ 475,508
Accounts receivable, net 418,056 486,144
Inventories 1,580,702 1,434,147
Prepaid expenses and other 102,500 78,766
------------ -----------
Total current assets 2,574,919 2,474,565
Deferred Income Taxes 133,000 133,000
Property and equipment - at cost
Machinery and equipment 571,947 566,732
Furniture and fixtures 76,927 76,927
Leasehold improvements 8,765 8,765
------------ -----------
657,639 652,424
Less accumulated depreciation 514,433 501,078
------------ -----------
143,206 151,346
Other assets
Goodwill, net of accumulated
amortization of $436,525
on September 30, 1998 and
$429,071 on June 30, 1998 756,174 763,628
Other, net 9,676 9,676
------------ -----------
765,850 773,304
------------ -----------
$ 3,616,975 $3,532,215
=========== ==========
</TABLE>
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<PAGE>
Metro Tel Corp.
Balance Sheets
(Unaudited, Notes A and C)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
September 30, June 30,
1998 1998
------------ ----------
<S> <C> <C>
Current Liabilities
Accounts payable $ 249,229 $ 196,694
Accrued liabilities 535,602 516,566
----------- -----------
Total current liabilities 784,831 713,260
Deferred Income Taxes 5,000 5,000
Stockholders' Equity
Preferred stock, $1 par value,
200,000 shares authorized,
none issued or outstanding - -
Common stock, $.025 par value,
6,000,000 shares authorized,
2,080,296 shares issued,
2,054,046 shares outstanding 52,007 52,007
Additional paid-in capital 2,152,423 2,152,423
Retained earnings 691,464 678,275
----------- -----------
2,895,894 2,882,705
Less 26,250 shares of treasury
stock - at cost (68,750) (68,750)
------------ -----------
2,827,144 2,813,955
----------- ----------
$3,616,975 $3,532,215
========== ==========
</TABLE>
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<PAGE>
Metro Tel Corp.
Statements of Cash Flows
(Unaudited, Note A and C)
<TABLE>
<CAPTION>
For the three months
ended September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 13,189 $ 29,155
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation and amortization 20,809 17,781
(Increase) decrease in operating assets:
Accounts receivable 68,088 (71,601)
Inventories (146,555) (90,8l8)
Prepaid expenses and other (23,734) (9,080)
Increase (decrease) in operating liabilities:
Accounts payable 52,535 (51,688)
Accrued liabilities 19,036 75,164
---------- ----------
Net cash (used) provided
by operating activities 3,368 (101,087)
Cash flows from investing activities:
Capital expenditures (5,215) (13,598)
----------- -----------
Net (decrease) in cash
and cash equivalents (1,847) (114,685)
Cash and cash equivalents at beginning of year 475,508 498,615
---------- ----------
Cash and cash equivalents at end of period $ 473,661 $ 383,930
========= =========
Supplement disclosures of cash flow information:
Cash paid during the period for
Income taxes - -
</TABLE>
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<PAGE>
METRO TEL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - General: The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB related to interim
period financial statements. Accordingly, these financial statements do not
include certain information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management, are
necessary in order to make the financial statements not misleading. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the full year. For further information, refer to the
Company's financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1998.
Note B - Earnings Per Common Share: In 1997, the FASB issued Statement No.128,
"Earnings per share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement No. 128 requirements.
Note C - Subsequent Event: On November 1, 1998, Steiner-Atlantic Corp.
("Steiner") was merged with and into a wholly-owned subsidiary of the Company
(the "Merger"); Steiner thereby became a wholly-owned subsidiary of the Company;
and William K. Steiner and Michael S. Steiner, the sole stockholders of Steiner,
were issued an aggregate of 4,720,954 shares of Common Stock of the Company
(representing approximately 69% of the outstanding shares of Common Stock of the
Company following the Merger). In addition, 100,000 shares of the Company's
Common Stock are being issued to Slusser Associates, Inc., the Company's
financial advisor in connection with the Merger. In addition, upon consummation
of the Merger, the Company granted options under the Company's 1991 Stock Option
Plan, as amended, to purchase an aggregate of 500,000 shares of its Common Stock
to employees of Steiner, other than William K. Steiner and Michael S. Steiner,
at an exercise price equal to 100% of the fair market value of the Company's
Common Stock at the time of grant. The 2,054,046 shares of the Company's Common
Stock outstanding at the time of the Merger remain outstanding and represent, in
the aggregate, approximately 30% of the Company's Common Stock outstanding after
the Merger.
Founded in 1960, Steiner is a supplier of dry cleaning equipment,
industrial laundry equipment and steam boilers, offering over 30 lines of
commercial systems to customers in South Florida, the Caribbean and Central and
South American markets. Steiner's services include: (1) designing and planning
"turn-key" laundry and/or dry cleaning systems to meet the layout, volume and
budget needs of a variety of institutional and retail customers, (2) supplying
replacement
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<PAGE>
equipment and parts to its customers, (3) providing warranty and preventive
maintenance through factory-trained technicians and service managers, (4)
selling its own line of dry cleaning systems to customers in the United States,
the Caribbean and Latin America, and (5) selling process steam systems and
boilers.
A discussion of the Merger and of Term Loan and Revolving Credit Loan
facility obtained by Steiner following the Merger, which is guaranteed by the
Company and secured by pledges of substantially all of the present and future
assets and property, excluding real estate, of the Company and Steiner, is
contained in the Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998. Certain historical financial statements of
Steiner and pro forma financial information concerning the Company and Steiner
are contained in the Company's Proxy Statement dated October 5, 1998.
For financial accounting purposes, this transaction will be accounted
for as a reverse acquisition of the Company by Steiner from the November 1, 1998
effective date of the Merger, commencing with the Company's Quarterly Report on
Form 10-Q for the quarter ending December 31, 1998. Since the Merger had not
been consummated at September 30, 1998, the financial statements contained
herein reflect only the results of operations and financial position of
Metro-Tel Corp. and do not include results of operations or balance sheet items
of Steiner.
-7-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Liquidity and Capital Resources
During the three month period ended September 30, 1998, cash decreased
by $1,847. Cash of $3,368 was generated by operating activities, with $13,189
derived from net income and $20,809 derived from non-cash expenses for
depreciation and amortization. Additional cash from operating activities was
provided by a reduction in accounts receivable ($68,088), plus an increase in
accounts payable ($52,535) and accrued liabilities ($19,036). These increases
were largely offset by increases in inventory ($146,555) and pre-paid expenses
($23,734). Cash of $5,215 was used to purchase capital assets. The Company has
no commitments for capital expenditures, although it intends to purchase capital
assets in the ordinary course of business. The Company believes that its present
cash and cash it expects to generate from operations will be sufficient to meet
its operational needs. In addition, Steiner-Atlantic Corp., which became a
wholly owned subsidiary of the Company on November 1, 1998, obtained a
$2,250,000 revolving line of credit and $2,400,000 term loan on November 2,
1998. Both the revolving line of credit and term loan are guaranteed by the
Company and secured by pledges of substantially all of the assets of the Company
and Steiner-Atlantic Corp.
Year 2000 Compliance
The Company believes that its internal management information systems,
billing, payroll and other information services are Year 2000 compliant. The
Company has already upgraded its software programs at a cost of less than $2,000
and has carried out certain tests of its accounts payable and accounts
receivable files which are date sensitive and found all systems to operate
properly. The Company has reviewed its transmission product line and found that
none of its products are date sensitive. Steiner-Atlantic's internal accounting
systems have been certified as being year 2000 compliant. Internal testing to
verify the certification will started in November 1998.
Results of Operations
Net sales decreased by $82,945 (7.9%) in the first quarter of fiscal
1999 from the same period in fiscal 1998. The Company believes that the decrease
in sales during the first quarter was primarily due to the cyclical buying
habits of telephone companies which are budget sensitive this time of year and
during the second quarter. Prices remained constant during the period. Sales of
telephone test equipment decreased by $188,319 (19.1%) in the first quarter of
fiscal 1999 from the same period in fiscal 1998. Decreases in sales of outside
plant test sets (4.1%) and installer's test sets (41.7%) were offset by
increases in sales of transmission test equipment (78.5%). Sales of customer
premise equipment increased by $109,454 (552.5%) during the first three months
of fiscal 1999 when compared to the same period of fiscal 1998, mainly due to a
one time contract
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<PAGE>
for CSU/DSU devices. Sales of miscellaneous products, parts and repairs
decreased by $4,080 (9.5%).
The Company's gross profit margin, expressed as a percentage of sales,
decreased to 36.5% for the first quarter of fiscal 1999 from 39.4% for the same
period of fiscal 1998. The decrease was mainly due to the decreased level of
sales which adversely impacted the Company's ability to absorb its fixed
expenses as well as an increase in payroll and payroll expenses.
Selling, general and administrative expenses decreased by $37,289
(12.0%) and as a percentage of sales to 34.2% from 34.8% during the first
quarter of fiscal 1999. The decrease consisted of a reduction in general and
administrative expenses (11.1%) and sales expenses (13.0%)
Research and development expenses increased by $1,531 (2.7%) in the
first quarter of fiscal 1999 compared to the same period of fiscal 1998 mainly
due to higher payroll, payroll expenses and supplies.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders.
At the Company's 1998 Annual Meeting of Stockholders held on October
29, 1998 (the "Merger"), stockholders:
(a) Approved and adopted an Agreement and Plan of Merger, dated as of
July 1, 1998 (the "Merger Agreement"), among the Company, Metro-Tel Acquisition
Corp. ("Subsidiary"), Steiner-Atlantic Corp. ("Steiner"), William K. Steiner and
Michael S. Steiner, pursuant to which, subsequent to the Meeting, Subsidiary, a
newly formed wholly-owned subsidiary of the Company, was merged with and into
Steiner (the "Merger"), as a result of which, among other things, Steiner became
a wholly-owned subsidiary of the Company, the stockholders of Steiner became
owners of approximately 69% of the outstanding shares of the Company's Common
Stock and a majority of the members of the Company's Board of Directors now
consists of designees of Steiner, by a vote of 1,436,079 shares in favor and
42,848 shares against, with 2,248 shares abstaining and 460,365 broker
non-votes;
(b) Approved and adopted a proposal to amend the Company's Certificate
of Incorporation to increase the number of shares of Common Stock which the
Company is authorized to issue from 6,000,000 shares to 15,000,000 shares, by a
vote of 1,434,111 shares in favor and 45,793 shares against, with 2,860 shares
abstaining and 458,776 broker non-votes;
(c) Approved and adopted a proposal to amend the Company's 1991 Stock
Option Plan to increase the number of shares of Common Stock which the Company
is authorized to issue thereunder from 250,000 shares to 850,000 shares, by a
vote of 1,401,367 shares in favor and 66,820 shares against, with 12,219 shares
abstaining and 461,134 broker non-votes; and
(d) Reelected the Company's then existing Board of Directors by the
following votes:
Votes
For Withheld
--- --------
Michael Epstein 1,906,379 35,161
Lloyd Frank 1,906,379 35,161
Venerando J. Indelicato 1,905,657 35,883
Michael Michaelson 1,906,379 35,161
Pursuant to the Merger Agreement, in addition to William K. Steiner and
Michael S. Steiner, Stuart Wagner and David Blyer were designated by Steiner to
serve on the Company's Board of Directors. Venerando Indelicato and Lloyd Frank
continue to serve as directors of the Company and, in accordance with the Merger
Agreement, Michael Epstein and Michael Michaelson have resigned as directors of
the Company.
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<PAGE>
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The only Current Report on Form 8-K filed by the Company during the
period covered by this report was a Report dated (date of earliest event
reported) July 6, 1998, reporting under Item 5, Other Events, and Item 7,
Financial Statements, Pro Forma Financial Information and Exhibits.
No financial statements were filed with that report.
Subsequently, the Company filed a Current Report on Form 8-K dated
(date of earliest event reported) October 29, 1998, reporting under Item 1,
Changes in Control of Registrant, Item 2, Acquisition or Disposition of Assets,
Item 5, Other Events, Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits and Item 8, Change in Fiscal Year. The following
financial statements were filed with that report through incorporation by
reference to such financial statements contained in the Company's Proxy
Statement dated October 5,1998 (File No.
0-9040):
The following historical financial statements of Steiner-Atlantic
Corp.:
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 1997 (audited) and June 30, 1998
(unaudited)
Statements of Income for the years ended December 31, 1996 and
1997 (audited) and for the six months ended June 30, 1997 and 1998
(unaudited)
Statements of Shareholders Equity for the years ended December 31,
1996 and 1997 (audited) and for the six months ended June 30, 1998
(unaudited)
Statements of Cash Flows for the years ended December 31, 1996 and
1997 (audited) and for the six months ended June 30, 1997 and 1998
(unaudited)
Notes to Financial Statements
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<PAGE>
The following unaudited Pro Forma Combined Condensed Financial Statements:
Introductory Statement
Unaudited Pro Forma Combined Condensed Balance Sheet of the
Company and Steiner-Atlantic Corp. at June 30, 1998.
Unaudited Pro Forma Combined Condensed Statements of Operations
for the year ended December 31, 1997 and the six months ended June
30, 1998.
Notes to Unaudited Pro Forma Combined Condensed Financial
Statement.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
METRO-TEL CORP.
Date: November 12, 1998 By: /s/ Venerando J. Indelicato
---------------------------------
Venerando J. Indelicato
Treasurer and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 273,661
<SECURITIES> 200,000
<RECEIVABLES> 428,056
<ALLOWANCES> 10,000
<INVENTORY> 1,580,702
<CURRENT-ASSETS> 2,574,919
<PP&E> 657,639
<DEPRECIATION> 514,433
<TOTAL-ASSETS> 3,616,975
<CURRENT-LIABILITIES> 784,831
<BONDS> 0
<COMMON> 52,007
0
0
<OTHER-SE> 2,780,137
<TOTAL-LIABILITY-AND-EQUITY> 3,616,975
<SALES> 963,683
<TOTAL-REVENUES> 963,683
<CGS> 612,265
<TOTAL-COSTS> 329,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,983
<INCOME-TAX> 8,794
<INCOME-CONTINUING> 13,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,189
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
