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 December 31, 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)
Not Applicable
(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 February 12, 1999.
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<TABLE>
<CAPTION>
METRO TEL CORP.
STATEMENTS of OPERATIONS
Unaudited, (1)
- -----------------------------------------------------------------------------------------------------
For the six months For the three months
ended December 31, ended December 31,
1998 (2) 1997 1998 (2) 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $8,600,664 $7,582,186 $5,106,250 $4,444,336
Other revenues (3) 289,533 121,625 237,317 79,989
----------- ---------- ---------- -----------
Total revenues 8,890,197 7,703,811 5,343,567 4,524,325
Cost of goods sold 6,414,181 5,715,128 3,793,986 3,485,775
--------- --------- --------- ---------
Gross profit 2,476,016 1,988,683 1,549,581 1,038,550
Selling, general and
administrative expenses 1,837,910 1,815,687 1,027,622 968,387
Research and development 40,906 40,906
----------- --------- ----------- -------
1,878,816 1,815,687 1,068,528 968,387
Operating income 597,200 172,996 481,053 70,163
Other income and expenses
Interest income 31,477 44,567 17,616 21,601
Other expenses (61,332) (61,332)
Interest expense (84,105) (25,200) (59,854) (12,245)
-------- -------- -------- --------
(52,628) (41,965) (42,238) (51,976)
Earnings before taxes 544,572 131,031 438,815 18,187
Provision for income taxes 104,399 104,399
------- -------- ------- -------
Net earnings $440,173 $131,031 $334,416 $18,187
Basic earnings per share (4) $.08 $.03 $.05 $.00
Diluted earnings per share (4) $.07 $.03 $.05 $.00
Weighted average number
of shares outstanding
Basic (5) 5,438,969 4,720,954 6,156,985 4,720,954
Diluted (5) 5,940,892 4,720,954 6,658,908 4,720,954
==========================================================================================================
Pro forma amounts
Earnings before taxes $544,572 $438,815
Executive compensation (6) 259,668 64,917
------- -------
Pro forma earnings before taxes 804,240 503,732
Provision for income taxes (7) 321,696 201,493
--------- ---------
Proforma net earnings $482,544 $302,239
Pro forma basic earnings per share $.09 $.05
Proforma diluted earnings per share $.08 $.05
Weighted average number of shares
outstanding
Basic (5) 5,438,969 6,156,985
Diluted (5) 5,940,892 6,658,908
</TABLE>
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<CAPTION>
METRO TEL CORP
CONSOLIDATED BALANCE SHEETS Unaudited (1)
December 31, 1998 June 30, 1998
----------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 810,360 $ 828,390
Accounts receivable, net 1,792,795 981,432
Inventories 4,281,085 2,911,158
Current portion of lease receivables 168,910 161,007
Prepaid expenses and other 89,177 33,490
------------ -----------
Total current assets 7,142,327 4,915,477
Lease receivables due after one year 123,684 148,651
Deferred income tax 133,000
Property and equipment, at cost-
net of accumulated depreciation
and amortization 169,897 146,461
Other assets 191,331 33,748
------- --------
$7,760,239 $5,244,337
========== ==========
</TABLE>
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<TABLE>
<CAPTION>
METRO TEL CORP
CONSOLIDATED BALANCE SHEETS Unaudited (1)
LIABILITIES AND SHAREHOLDERS'
EQUITY
December 31, 1998 June 30, 1998
----------------- -------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $1,426,795 $1,494,975
Line of credit 1,000,000
Current portion of bank loan 480,000 200,000
Customer deposits 344,585 389,371
Income taxes payable 41,008 ________
-----------
Total current liabilities 2,292,388 3,084,346
--------- ---------
Long term loan less current portion 1,880,000 216,613
Deferred income tax 5,000
SHAREHOLDERS' EQUITY
Common stock, $.025 par value per share,
15,000,000 shares authorized,
6,901,250 shares issued and
6,875,000 shares outstanding
as of December 31, 1998,
4,720,954 shares at June 30, 1998 (2) 172,531 118,024
Additional paid-in capital 1,992,664 51,726
Retained earnings 1,486,406 1,773,628
Less 26,250 shares of treasury
stock at cost (68,750) __________
-----------
Total shareholders' equity 3,582,851 1,943,378
------------ -------------
$ 7,760,239 $ 5,244,337
============ =============
</TABLE>
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<TABLE>
<CAPTION>
METRO TEL CORP.
STATEMENTS OF CASH FLOWS Unaudited (1)
Six months ended Six months ended
December 31, December 31,
1998 (2) 1997
--------- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $440,173 $131,031
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 4,145 83,131
Depreciation and amortization 15,624 15,132
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables (391,685) (352,234)
Inventories 252,217 3,346
Prepaid expenses and other assets (96,487) 27,197
Increase (decrease) in:
Accounts payable and accrued expenses (807,661) (60,838)
Customer deposits (44,786) (119,036)
Income taxes payable 41,008 ________
---------
Cash used by operating activities (587,452) (272,271)
Cash flows from investing activities:
Capital expenditures (31,459) (28,426)
Cash of acquired company 384,888 ________
-------
Cash flows provided (used) in investing activities 353,429 (28,426)
Cash flows from financing activities:
Payments on line of credit (1,000,000)
Payments on term loan (416,613) (100,000)
Borrowings on line of credit 500,000
Borrowings under new term loan 2,400,000
Payments under new term loan (40,000)
Cash distribution to shareholders (727,394) (400,000)
--------- ---------
Cash flows provided from financing activities 215,993 -
Decrease in cash and cash equivalents (18,030) (300,697)
Cash and cash equivalents at beginning of period 828,390 933,028
-------- --------
Cash and cash equivalents at end of period $ 810,360 $ 632,331
---------- ----------
Supplemental information:
Cash paid for interest $ 84,105 $ 25,200
Non-cash transactions
Acquisition of net assets $1,541,807
</TABLE>
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METRO TEL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) 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, the Company's
Transition Annual Report on Form 10-KSB for the period January 1, 1998 to June
30, 1998 and the Company's Proxy Statement dated October 5, 1998.
NOTE (2) Basis of Presentation: On November 1, 1998, Steiner-Atlantic Corp.
("Steiner") was merged (the "Merger") with and into, and became a wholly-owned
subsidiary of, Metro-Tel Corp. ("Metro-Tel" and collectively with Steiner, the
"Company"). As a result of the Merger, the Company has added Steiner's
operations as a supplier of dry cleaning, industrial laundry equipment and steam
boilers to Metro-Tel's telecommunications operations as a manufacturer and
seller of telephone test and customer premise equipment.
All periodic reports heretofore filed by the Company with the Securities and
Exchange Commission have reflected only the business and financial statements of
Metro-Tel Corp. on a stand-alone basis.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse acquisition" of Metro-Tel by Steiner utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in this and future periodic reports filed by the Company covering
periods prior to November 1, 1998 will reflect only the results of operations,
financial position and cash flows of Steiner on a stand-alone basis. All
consolidated financial statements of the Company for periods commencing November
1, 1998 will, in addition, include the results of operations, financial position
and cash flows of Metro-Tel from and after November 1, 1998. Accordingly, the
results of operations for both reported periods of 1997 do not reflect the
results of telecommunications operations and the results for both periods of
1998 presented include only two months of operations of telecommunications
operations.
At June 30, 1998, the Steiner shares (339,500) were recapitalized to 4,720,954.
The attached financial statements give effect to this recapitalization.
NOTE (3) Management fees for all periods presented have been reclassified for
comparative purposes.
NOTE (4) 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
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<PAGE>
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 (5) The change in the weighted average number of shares in basic and
diluted earnings per share is due to the outstanding stock options.
NOTE (6) Executive Compensation Adjustment: The adjustment for executive
compensation excluding the agreed upon executive salaries to be paid to certain
executives after consummation of the merger pursuant to the agreement.
NOTE (7) Income Tax Adjustment: The adjustment to the provision for income taxes
to reflect income taxes had Steiner-Atlantic been a C corporation for the
periods shown.
-7-
<PAGE>
Managements's Discussion and Analysis of
Financial Condition and Results of Operations
On November 1, 1998, Steiner-Atlantic Corp. ("Steiner") was merged (the
"Merger") with and into, and became a wholly-owned subsidiary of, Metro-Tel
Corp. ("Metro-Tel" and collectively with Steiner, the "Company"). As a result of
the Merger, the Company has added Steiner's operations as a supplier of dry
cleaning, industrial laundry equipment and steam boilers to Metro-Tel's
telecommunications operations as a manufacturer and seller of telephone test and
customer premise equipment.
All periodic reports heretofore filed by the Company with the Securities and
Exchange Commission have reflected only the business and financial statements of
Metro-Tel Corp. on a stand-alone basis.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse acquisition" of Metro-Tel by Steiner utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in this and future periodic reports filed by the Company covering
periods prior to November 1, 1998 will reflect only the results of operations,
financial position and cash flows of Steiner on a stand-alone basis. All
consolidated financial statements of the Company for periods commencing November
1, 1998 will, in addition, include the results of operations, financial position
and cash flows of Metro-Tel from and after November 1, 1998. Accordingly, the
results of operations for both reported periods of 1997 do not reflect the
results of telecommunications operations.
Liquidity and Capital Resources
For the six month period ended December 31, 1998, cash decreased by $18,030.
Operating activities used cash of $587,452 to support an increase in accounts
and lease receivables ($391,685), and an increase in pre-paid expenses and other
assets ($96,487) which offset a decrease in inventories ($252,217). Additional
cash was used to decrease accounts payable and accrued expenses ($807,661) and
customer deposits ($44,786). These were offset by $440,173 provided by the
Company's net income supplemented by non-cash expenses of $15,624 for
depreciation and amortization and $4,145 for bad debts. Cash of $384,888 was
provided by the acquisition while $31,459 was used to purchase capital assets.
On November 2, 1998, Steiner entered into a Loan and Security Agreement with
First Union National Bank. Under the Loan Agreement, the bank has made a term
loan to Steiner of $2,400,000 and provided Steiner with a revolving credit
facility entitling it to borrow up to $2,250,000 until the earlier of November
2, 1999 or the date the bank demands repayment of revolving credit loans. The
term loan is payable in monthly installments of $40,000 plus interest,
commencing January 1999 with a $960,000 balloon payment in January 1999. The
loans, which are guaranteed by Metro-Tel, are secured by pledges of
substantially all of the present and future assets and property, excluding real
estate, of Metro-Tel and Steiner. A portion of the proceeds of the term loan
were used to repay Steiner's existing line of credit of $1,000,000 and the
remaining outstanding balance ($416,613) of Steiner's former term loan, as well
as to fund the remaining Subchapter S distributions ($727,394) payable to the
former shareholders of Steiner. One installment payment of $40,000 made in
advance was also made during the quarter on the new term loan. The foregoing
resulted in a net $215,993 being provided by financing activities. As at
December 31, 1998, there were no loans outstanding under the revolving credit
facility. The Company believes that its present cash and cash it expects to
generate from operations will be sufficient to meet its operational needs.
-8-
<PAGE>
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 and carried out certain tests of its
accounts receivable and accounts payable files which are date sensitive and
found all systems to operate properly. The Company is not linked by computer
with any of its customers or vendors. Orders are received and purchase orders
are sent by telecopy, telephone, in person or by mail. None of these methods are
date sensitive.
Results of Operations
The results of both the six and three month periods ended December 31, 1998
reflect the results of dry cleaning and laundry equipment and steam boiler
supplier operations for the full periods along with two months of operations of
the telecommunications division.
Net sales for the six and three month periods ended December 31, 1998 increased
by $1,018,478 (13.4%) and $661,914 (14.9%), respectively, from the comparable
periods of fiscal 1998 mainly due to the increased sales of laundry equipment,
steam boilers and spare parts which offset a reduction in sales of dry cleaning
equipment. Included in each reported period is $523,652 of telecommunication
equipment sales. Other revenues increased by $167,908 (138.1%) and $157,328
(196.7%), respectively, for the six and three month periods of fiscal 1999 when
compared to the comparable periods of fiscal 1998, mainly due to increased
management fees.
The Company's gross profit margin, expressed as a percentage of sales, increased
to 27.9% for the six month period of fiscal 1999 from 25.8% for the same period
of fiscal 1998. For the three month period gross margin increased to 29.0% in
fiscal 1999 from 23.0% in fiscal 1998. These increases are mainly due to the
addition of the telecommunications division whose products normally carry a
higher margin and the increase in management fees.
Selling, general and administrative expenses increased by $22,223 (1.2%) and
$59,235 (6.1%) for the six and three month periods, respectively, in fiscal 1999
from the comparable periods in fiscal 1998. The increase in both periods was
attributed to the inclusion of the telecommunications division which offset a
reduction in this category of expenses in Steiner caused by a decrease in
executive compensation as a result of the merger.
Research and development expenses relate solely to telecommunications operations
included only for the two months following the merger.
Interest expense increased by $58,905 (233.8%) and $47,609 (388.8%) in the six
and three month periods of fiscal 1999 over the comparable periods in fiscal
1998 due to the higher level of indebtedness.
A provision for income tax is reflected only for the two month period following
the merger for both the six and three month periods of fiscal 1999. Prior to
those periods Steiner-Atlantic Corp. was a sub-chapter S corporation and,
accordingly, its shareholders, rather than it, were subject to income taxation
of Steiner's earnings. See pro forma amounts.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders.
As previously reported in the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999, 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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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) 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
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.
Subsequently, the Company filed a Current Report on Form 8-K dated
(date of earliest event reported) January 4, 1999, reporting under Item 4:
Changes in Registrant's Certifying
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<PAGE>
Accountant, Item 5: Other Events, and Item 7: Financial Statements, Pro Forma
Financial Information and Exhibits. No financial statements were filed with the
Report.
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: February 12, 1999 By: /s/ Venerando J. Indelicato
----------------------------
Venerando J. Indelicato
Treasurer and
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 810,360
<SECURITIES> 0
<RECEIVABLES> 1,802,795
<ALLOWANCES> 10,000
<INVENTORY> 4,281,085
<CURRENT-ASSETS> 7,142,327
<PP&E> 1,377,157
<DEPRECIATION> 1,074,309
<TOTAL-ASSETS> 7,760,239
<CURRENT-LIABILITIES> 2,292,388
<BONDS> 0
<COMMON> 172,531
0
0
<OTHER-SE> 5,295,320
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 8,600,664
<TOTAL-REVENUES> 8,890,197
<CGS> 6,414,181
<TOTAL-COSTS> 1,878,816
<OTHER-EXPENSES> 52,628
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 84,105
<INCOME-PRETAX> 544,572
<INCOME-TAX> 104,399
<INCOME-CONTINUING> 440,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440,173
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
