SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-9040
METRO-TEL CORP.
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(Name of small business issuer in its charter)
Delaware 11-2014231
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 N.E. 68th Street, Miami, Florida 33138 95035
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 305-754-4551
Securities registered under Section 12(b) of the Exchange Act: Common Stock,
$.025 par value
Securities registered under Section 12(g) of the Exchange Act: None
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The aggregate market value as at September 15, 1999 of the Common Stock
of the issuer, its only class of voting stock, held by non-affiliates was
approximately $3,642,000 calculated on the basis of the mean between the high
bid and low asked prices of the Company's Common Stock on the Nasdaq Electronic
Bulletin Board on that date. Such market value excludes shares owned by all
executive officers and directors (but includes shares owned by their spouses);
this should not be construed as indicating that all such persons are affiliates.
The number of shares outstanding of the issuer's Common Stock as at
September 15, 1999 was 6,925,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 1999 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11 and 12
in Part III of this Report.
Transitional Small Business Disclosure Format Yes [ ] No [X]
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FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT UNDER THE CAPTIONS "ITEM 1.
BUSINESS," "ITEM 2. PROPERTIES" AND "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). WHEN USED IN THIS REPORT, WORDS SUCH AS "MAY,"
"SHOULD," "SEEK," "BELIEVE," "EXPECT," ANTICIPATE," "ESTIMATE," "PROJECT,"
"INTEND", "STRATEGY" AND "PRO FORMA" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS, OPERATIONS, BUSINESS
STRATEGY, OPERATING RESULTS AND FINANCIAL POSITION. FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT MAY
CAUSE ACTUAL RESULTS, TRENDS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY TRENDS AND RESULTS, TO DIFFER MATERIALLY FROM THE FUTURE RESULTS,
TRENDS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS: GENERAL ECONOMIC
AND BUSINESS CONDITIONS, AS WELL AS INDUSTRY CONDITIONS AND TRENDS, INCLUDING
SUPPLY AND DEMAND; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS; THE
AVAILABILITY, TERMS AND DEPLOYMENT OF DEBT AND EQUITY CAPITAL; TECHNOLOGY
CHANGES; COMPETITION AND OTHER FACTORS WHICH MAY AFFECT PRICES WHICH THE COMPANY
MAY CHARGE FOR ITS PRODUCTS AND ITS PROFIT MARGINS; THE AVAILABILITY AND COST OF
THE EQUIPMENT AND RAW MATERIALS PURCHASED BY THE COMPANY; RELATIVE VALUES OF THE
UNITED STATES CURRENCY TO CURRENCIES IN THE COUNTRIES IN WHICH THE COMPANY'S
CUSTOMERS, SUPPLIERS AND COMPETITORS ARE LOCATED; AVAILABILITY OF QUALIFIED
PERSONNEL; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS;
AND THE ABILITY OF CERTAIN OF THE COMPANY'S CUSTOMERS, AND SUPPLIERS AND OTHERS
TO SUCCESSFULLY AND TIMELY COMPLETE THEIR YEAR 2000 COMPLIANCE PROGRAMS. THESE
AND CERTAIN OTHER FACTORS ARE DISCUSSED IN THIS REPORT AND FROM TIME TO TIME IN
OTHER COMPANY REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY DOES NOT ASSUME AN OBLIGATION TO UPDATE THE FACTORS DISCUSSED IN THIS
REPORT OR SUCH OTHER REPORTS.
PART 1
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ITEM 1. BUSINESS.
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GENERAL
On November 1, 1998, Steiner-Atlantic Corp. ("Steiner") was merged (the
"Merger") with and into, and therefore became, a wholly-owned subsidiary of
Metro-Tel Corp. ("Metro-Tel" and collectively with Steiner and Steiner's
wholly-owned subsidiaries, the "Company"). As a result of the Merger, the
Company added Steiner's operations as a supplier of dry cleaning, industrial
laundry equipment and steam boilers to Metro-Tel's operations as a manufacturer
and seller of telephone test and customer premise equipment.
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
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financial statements of the Company included in this report covering periods
prior to November 1, 1998 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, in
addition, include the results of operations, financial position and cash flows
of Metro-Tel from and after November 1, 1998.
Steiner is a supplier of dry cleaning equipment, industrial laundry
equipment and steam boilers to customers in the United States, the Caribbean and
Latin American markets. This aspect of Steiner's services includes: (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 equipment and parts to its customers, (3)
providing warranty and preventative maintenance through factory-trained
technicians and service managers, (4) selling its own line of dry cleaning
systems under its Aero-Tech brand name; and (5) selling process steam systems
and boilers.
In March 1999, Steiner formed a new subsidiary, Steiner-Atlantic
Brokerage Company, Inc. ("Steiner Brokerage") to act as a business broker to
assist others seeking to buy or sell existing dry cleaning and laundry
businesses. Many of Steiner's existing customers have become Steiner Brokerage
clients, utilizing Steiner's staff and ability to assist them in the sale of
their businesses and associated real property.
In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including, among other things, the worldwide rights to the name
DRYCLEAN USA along with existing franchise and license agreements. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 300 franchised and licensed
locations in the United States, the Caribbean and Latin America. Steiner expects
to aggressively increase the number of existing franchisees and licensees of
DRYCLEAN USA through proven sales and advertising methods with an expanded sales
staff. In addition, it expects to advertise its franchise and license program on
an internet website which will also allow local customers to download discount
coupons to be redeemed at their local DRYCLEAN USA store. The website is also
expected to provide interactive information and solutions to clothing and
textile problems in the home and office.
Metro-Tel is engaged in the manufacture and sale of telephone test and
customer premise equipment utilized by telephone and telephone interconnect
companies in the installation and maintenance of telephone equipment. Through
internal research and development and through acquisition, Metro-Tel has added
various product lines to its telephone test and customer premise product lines.
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STEINER'S OPERATIONS
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History. Steiner was founded in 1960 by William K. Steiner, initially
operating as a distributor of dry cleaning systems and boilers, and as a
rebuilder of laundry, dry cleaning and boiler equipment. Steiner expanded in
1972, when it began distributing institutional laundry equipment to hotels,
motels and hospitals. In 1980, Steiner began importing dry cleaning systems from
an English manufacturer and, four years later, Steiner developed a relationship
with an Italian manufacturer of dry cleaning systems. In 1990, Steiner
established its own branded product line with the introduction of an updated dry
cleaning system under the Aero-Tech label, substantially all of which is
currently manufactured exclusively for Steiner in Italy.
Product Lines. Steiner offers a broad line of laundry and dry cleaning
equipment and steam boilers, as well as a comprehensive parts and accessories
inventory. Steiner's laundry equipment features washers and dryers, including
coin-operated machines, boilers, water reuse and heat reclamation systems,
flatwork ironers and automatic folders. Steiner's dry cleaning equipment
includes dry cleaning machines, garment presses, finishing equipment, and
sorting and distributing conveyors.
Steiner's product lines are positioned and priced to appeal to
customers in each of the high-end, mid-range and value priced markets. Steiner's
product lines are offered under a wide range of price points to address the
needs of a diverse customer base. Suggested prices for most of Steiner's
products range from approximately $5,000 to $50,000. Steiner's product line
offers its customers a "one-stop shop" for laundry and dry cleaning systems,
boilers and accessories. By providing "one-stop" shopping, Steiner believes it
is better able to attract and support potential customers who can choose from
Steiner's broad product line.
Steiner seeks to establish customer satisfaction by offering (1) an
on-site training and preventive maintenance program performed by factory trained
technicians and service managers; (2) design and layout assistance; (3)
maintenance of a comprehensive parts and accessories inventory and same day or
overnight availability; and (4) competitive pricing. Steiner provides a
toll-free support line to resolve customer service problems.
In March 1999, Steiner formed a new subsidiary, Steiner-Atlantic
Brokerage Company, Inc. to act as a business broker to assist others seeking to
buy or sell existing dry cleaning and laundry businesses. Many of Steiner's
existing customers have become Steiner Brokerage clients, utilizing Steiner's
staff and ability to assist them in the sale of their businesses and associated
real property.
In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including the worldwide rights to the name DRYCLEAN USA along with
existing franchisees and licensees and associated annual revenues. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 300 franchised and licensed
locations in the United States, the Caribbean and Latin America.
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Sales, Marketing and Customer Support. Steiner's laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean,
and Latin America. Steiner employs sales executives to market its products,
including its Aero-Tech products in the United States and in international
markets. Steiner supports its products by representative advertising in trade
publications, participating in trade shows and engaging in regional promotions
and sales incentive programs. A substantial portion of Steiner's equipment sales
orders are obtained by telephone, e-mail and fax inquiries originated by the
customer or by Steiner and significant repeat sales are derived from existing
customers.
Steiner trains its sales and service employees to provide service and
customer support. Steiner uses specialized classroom training, instructional
videos and vendor sponsored seminars to educate employees about product
information. In addition, Steiner's technical staff has prepared comprehensive
training manuals, written in English and Spanish, relating to specific training
procedures. Steiner's technical personnel are continuously updated and retrained
as new technology is developed. Steiner monitors service technicians' continued
educational experience and fulfillment of requirements in order to evaluate
their competence. All of Steiner's service technicians receive service
bulletins, service technicians' tips and continued training seminars.
Customers and Markets. Steiner's customer base consists of
approximately 500 customers in the United States, the Caribbean and Latin
America, including independent and franchise dry cleaning chains and
institutions, hotels, motels, hospitals, cruise lines, nursing homes, government
institutions and distributors. No customer accounted for more than 10% of
Steiner's revenues during the year ended June 30, 1999, the six months ended
June 30, 1998 or the year ended December 31, 1997.
The following table sets forth the approximate geographic distribution
of Steiner's sales (the percentage being based on Steiner's sales, rather than
consolidated revenues) for the year ended June 30, 1999, the six months ended
June 30, 1998 and the year ended December 31, 1997:
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Year Ended Six Months Ended Year Ended
June 30, 1999 June 30, 1998 December 31, 1997
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(dollars in thousands)
Amount % Amount % Amount %
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United States $12,661 79.4% $5,317 68.6 $10,144 72.0
Latin
America $ 1,559 9.8% 1,217 15.7 1,596 11.3
Caribbean $ 1,573 9.9% 1,148 14.8 1,793 12.7
Other $ 144 .9% 65 .9 561 4.0
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Total $15,937 100.0% $7,747 100.0% $14,094 100.0%
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Sources of Supply. Steiner purchases laundry and dry cleaning systems,
boilers and other products from a number of manufacturers, none of which
accounted for more than 20% of Steiner's purchases for the year ended June 30,
1999, the six months ended June 30, 1998 or the year ended December 31, 1997.
Steiner has established long-standing relationships with many of the leading
laundry, dry cleaning and boiler manufacturers. Steiner's management believes
these supplier relationships provide Steiner with a substantial competitive
advantage, including exclusivity in certain products and areas and favorable
prices and terms. Therefore, the loss of a major vendor relationship could
adversely affect Steiner's business. Historically, Steiner has not experienced
difficulty in purchasing desired products from its suppliers and believes it has
good working relationships with its suppliers.
Steiner has a formal contract with only one of its equipment
manufacturers, and relies on its long-standing relationship with its other
supplier. Steiner collaborates in the design, closely monitors the quality of
the manufactured product and believes its Aero-Tech systems exceed the
environmental regulations set by safety and environmental regulatory agencies.
Steiner must place its orders with its Italian manufacturer of its Aero-Tech
product line prior to the time Steiner has received all of its orders. However,
because of Steiner's close working relationship with its Italian manufacturer,
Steiner can usually adjust orders rapidly and efficiently to reflect a change in
customer demands.
According to its arrangement with its Italian manufacturer, Steiner
purchases dry cleaning systems in Italian lira. Imports into the United States
are also affected by the cost of transportation, the imposition of import duties
and increased competition from greater production demands abroad. The United
States and Italy may, from time to time, impose new quotas, duties, tariffs or
other restrictions or adjust prevailing quotas, duty or tariff levels, which
could affect Steiner's margins on its Aero-Tech systems. United States customs
duties presently are approximately 1% of invoice cost on dry cleaning systems.
However, in the case of a substantial decline in the value of the U.S. dollar
against the Italian lira or the implementation of significant custom duties
import controls or trade
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barriers with Italy, Steiner believes it has the ability to have its Aero-Tech
line manufactured by other international suppliers.
Competition. The laundry and dry cleaning equipment distribution
business is highly competitive and fragmented with over 100 full-line or
partial-line equipment distributors in the United States. Steiner's management
believes that no distributor supplies more than 6% of the market and that
substantially all such distributors are independently owned and, with the
exception of several regional distributors, operate primarily in local markets.
Competition is based on price, product quality, delivery and support services
provided by the distributor to the customer. In South Florida, Steiner's
principal domestic market, Steiner's primary competition is derived from two
full-line distributors which operate out of the Miami area. In the export
market, Steiner competes with several distributors and anticipates increased
competition as the export market grows. As Steiner expands the sale of its
Aero-Tech line to its distributors on a national level, it competes with over a
dozen manufacturers of dry cleaning equipment whose products are distributed
nationally. Steiner competes by offering an extensive product selection,
value-added services, such as product inspection and quality assurance,
toll-free customer support line, reliability, warehouse location, price and,
with the Aero-Tech line, competitive special features and exclusivity.
As a franchisor/licensor of retail dry cleaning stores, DRYCLEAN USA
competes with several other franchisors and turn-key suppliers of drycleaning
stores primarily on the basis of trademark recognition and reputation. As a
broker in the purchase and sale of retail dry cleaning stores, Steiner Brokerage
competes with business brokers generally, as well as with other professionals
with contacts in the retail dry cleaning business. Competition in this latter
area is primarily based on reputation, advertising and, to a lesser degree, on
the level of fees charged.
METRO-TEL'S OPERATIONS.
History. The Metro-Tel was incorporated under the laws of the State of
Delaware on June 30, 1963. Since its inception, Metro-Tel has been engaged in
the manufacture and sale of telephone test and customer premise equipment
utilized by telephone and telephone interconnect companies in the installation
and maintenance of telephone equipment. Through internal research and
development and through acquisition, Metro-Tel has added various product lines
to its telephone test and customer premise product lines.
Product Lines. The following table sets forth the approximate net sales
of each of the Metro- Tel's two products lines and of its other products and
services, as a group, and the percentages which such sales bear to total net
sales of Metro-Tel on a stand-alone basis during the fiscal year ended June 30,
1999 and the period from November 1, 1998 to June 30, 1999 (subsequent to the
Merger):
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11/1/98 to 6/30/99
(Subsequent to Merger) Year Ended June 30, 1999
----------------------------
Amount % Amount %
------ -- ------ --
(dollars in thousands) (dollars in thousands)
Telephone Test Equipment $1,909 93.2% $3,004 90.3%
Customer Premise 50 2.4% 183 5.5%
Equipment
Other Products and Services 90 4.4% 138 4.2%
------ ---- ------ ----
$2,049 100% $3,325 100%
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TELEPHONE TEST EQUIPMENT. Metro-Tel manufactures and sells a line of
telephone test equipment which includes portable test sets, which are designed
for use in locating high resistance faults resulting from moisture in exchange
cables and by cable splicers on exchange and toll cables for identification of
cable wires and other tone-testing purposes; linemen's rotary and/or touch-tone
testing handsets and portable line test sets for use by telephone installers,
repairmen and central office personnel; hand and pole exploring coils which are
used in cable fault finding; solid state conversion amplifier kits;
Volt-Ohmmeter test sets; and Cable Hound(R), a portable electronic unit that
locates and determines the depth of underground cable and metal pipes primarily
for the telephone, utility and construction industries.
In addition, Metro-Tel manufactures a line of transmission test
equipment used in telephone company central office installations by operating
companies, long distance telephone resellers and large companies who own their
own networks. Among these products are digital and analog rack-mounted test
systems, portable transmission test sets, remote test systems and fiber optic
test sets.
CUSTOMER PREMISE EQUIPMENT. Metro-Tel manufactures and markets a line
of telephone station and peripheral products, including telephone call
sequencers (which answer calls on up to 12 incoming unattended lines, provide
the caller with an appropriate message and place the calls in queue until
answered by an attendant) and a line of digital announcers (which provide a
pre-programmed message with the ability to ring through at the end of the
message if so desired by the caller). This product line also includes a series
of specialty telephone products, including call diverters (call forwarding
devices used both by end-users and in telephone company central offices), speed
dialers, specialty telephones and amplified handsets for the hearing impaired.
In addition, Metro-Tel distributes a line of Channel Service Units/Data
Service Units (CSU/DSU) for the data industry. These devices are used to
terminate a digital channel on a customer's premises and enable computer data to
be transmitted and received at high speeds over the
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telephone line without the use of a modem.
OTHER PRODUCTS AND SERVICES. Metro-Tel also sells spare parts for its
product lines and provides repair services for its products.
Methods of Distribution. Metro-Tel presently sells its products through
its own regional sales managers and sales representatives who assist Metro-Tel's
national telephone equipment distributors. Sales managers are presently based in
Georgia and California. In addition, Metro-Tel maintains an in-house sales staff
at its facilities in Milpitas, California.
Principal Customers. Metro-Tel is not dependent upon any single
customer. However, North Supply Company, a national distributor of telephone
products, accounted for approximately 11% of Metro-Tel's net sales for the year
ended June 30, 1999, but less than 10% of the Company's consolidated revenues
for that year. Metro-Tel believes that, should it for any reason lose this
distributor, Metro-Tel could be adversely impacted although these sales would
normally be absorbed by other Metro-Tel distributors.
Sources of Supply. The basic materials used in the manufacture of
Metro-Tel's telephone test equipment and telephone station and peripheral
telephone equipment consist of electronic components. Metro-Tel utilizes many
suppliers and is not dependent on any supplier. Its raw materials generally are
readily available from numerous suppliers.
Competition. Competition is high with respect to each of Metro-Tel's
product lines. However, as the products contained in such lines are varied and
similar products contain varying features, neither Metro-Tel nor any of its
competitors is a dominant factor in any product line market, except for
linemen's test sets for which Dracon, a division of Harris Corporation, is
dominant.
The principal method of competition for each of Metro-Tel's products is
price and product features, with service and warranty having a relatively less
significant impact. Metro-Tel believes its product lines are competitively
priced. Many of Metro-Tel's competitors have greater financial resources and
have more extensive research and development and marketing staffs than
Metro-Tel.
Research and Development. Metro-Tel is regularly engaged in the design
of new products and improvement of existing products for all of its
telecommunication equipment products lines. The amounts specifically allocated
to research and development activities for the eight months ended June 30, 1999
was $171,354. All research and development is internally generated, except for
products designed for Metro-Tel by unaffiliated third parties compensated by
either a lump-sum payment or on a royalty basis.
PATENTS AND TRADEMARKS
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The Company is the owner of United States service mark registrations
for the names Aero- Tech, Logitrol, Petro-Star, Aqua Star and Enviro-Star which
are used in connection with its laundry
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and dry cleaning business lines and, since July 1999, DRYCLEAN USA, which is
licensed by it to retail dry cleaning establishments. The Company intends to use
and protect these or related service marks, as necessary. The Company believes
its trademarks and service marks have significant value and are an important
factor in the marketing of its products.
The Company has obtained a number of trademarks which are used to
identify its telephone test and customer premise product lines. None of these
trademarks is considered to be material to the Company's telecommunication's
product lines. The Company also pays royalties to third parties under
arrangements permitting the Company to manufacture various items in its product
lines.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT LAWS AND REGULATIONS
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Over the past several decades in the United States, federal, state and
local governments have enacted environmental protection laws in response to
public concerns about the environment. A number of industries, including the dry
cleaning and laundry equipment industry, are subject to these evolving laws and
implementing regulations. As a supplier to the industry, the Company serves
customers who are primarily responsible for compliance with environmental
regulations. Among the federal laws that the Company believes are applicable to
the industry, are the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), which provides for the investigation and
remediation of hazardous waste sites; The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), which regulates generation and transportation of
hazardous waste as well as its treatment, storage and disposal; and the
Occupation Safety and Health Administration Act ("OSHA"), which regulates
exposure to toxic substances and other health and safety hazards in the
workplace. Most states and a number of localities have laws that regulate the
environment which are at least as stringent as the federal laws. In Florida,
environmental matters are regulated by the Florida Department of Environmental
Protection which generally follows the Environmental Protection Agency's ("EPA")
policy in the EPA's implementation of CERCLA and RCRA and closely adheres to
OSHA's standards.
Certain of the Company's customer premise equipment products that
connect to public telephone networks need Federal Communications Commission (or,
in the case of foreign sales, the equivalent agency in the foreign country in
which they will be sold) approval prior to their sale.
The Company does not believe that compliance with Federal, state and
local environmental and other laws and regulations which have been adopted have
had, or will have, a material effect on its capital expenditures, earnings or
competitive position.
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EMPLOYEES
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The Company currently employs 58 employees on a full-time basis, of
whom three are in executive management, 13 are engaged in sales and marketing,
15 are administrative and clerical, three are engineers and technicians, 19 are
engaged in production and five are in warehouse support. Of the Company's
employees, 30 are employed exclusively with respect to the Company's laundry and
dry cleaning equipment operations, 26 are employed exclusively with respect to
the Company's telecommunications equipment operations and 2 currently divide
their time between the two operations. None of the Company's employees are
subject to a collective bargaining agreement, nor has the Company experienced
any work stoppages. The Company believes that its relations with employees are
satisfactory.
FOREIGN AND GOVERNMENT SALES
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Steiner's export sales of the Company's laundry and dry cleaning
business were approximately $3,276,100, $2,430,610 and $3,949,512 during the
year ended June 30, 1999, six months ended June 30, 1998 and year ended December
31, 1997, respectively. Such export sales were made principally to Latin America
and the Caribbean. See "--Steiner's Operations-Customers and Markets".
Metro-Tel's export sales of telephone test and customer premise
equipment were $167,422 for the eight months ended June 30, 1999. Such export
sales were made principally to Europe, Canada and South America. Some of
Metro-Tel's export sales are made through distributors and agents.
All of the Company's export sales require the customer to make payment
in United States dollars. Accordingly, foreign sales may be affected by the
strength of the United States dollar relative to the currencies of the countries
in which their customers and competitors are located.
Revenues from sales to the United States government (none of the
contracts relating thereto being subject to renegotiation of profits or
termination at the election of the government) are immaterial.
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ITEM 2. PROPERTIES.
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The Company's executive offices and the main distribution center for
its laundry and dry cleaning equipment products are housed in three leased
adjacent facilities totaling approximately 47,000 square feet in Miami, Florida,
and the manufacturing and distribution facility for its telephone test and
customer premise equipment operations is located in approximately 21,500 square
feet of leased space in Milpitas, California. The Company believes its
facilities are adequate for its present needs and that suitable space would be
available to accommodate its future needs. The following table sets forth
certain information concerning the leases at these facilities:
Approximate
Facility Sq. Ft. Expiration
- -------- ----------- ----------
Miami, Florida (1) 27,000 October 2004
Miami, Florida 8,000 Month to Month
Miami, Florida 12,000 December 2002
Milpitas California 21,500 March 2002
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(1) Leased from William K. Steiner, a director of the Company. The lease
includes an option to renew the lease for a ten-year term at a rent to
be agreed upon by the parties.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not applicable.
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PART II
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ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock has been traded on the Chicago Stock
Exchange under the symbol "MTF" since January 11, 1999 and has been quoted on
the Nasdaq Electronic Bulletin Board under the symbol "MTRO" since January 7,
1999. Prior thereto, the Company's Common Stock was quoted on The Nasdaq Stock
Market Small Cap Market. The following table sets forth the high and low bid
prices for the Company's Common Stock for each quarterly period reflected, as
reported by Nasdaq. The Nasdaq quotations are without retail markups, markdowns
or commissions and may not represent actual transactions.
HIGH LOW
---- ---
Fiscal 1998
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First Quarter 1 3/8 11/16
Second Quarter 11/2 7/8
Third Quarter 1 3/8 5/8
Fourth Quarter 1 3/4 25/32
Fiscal 1999
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First Quarter 1 3/8 7/8
Second Quarter 3 9/16 5/8
Third Quarter 3 3/16 21/2
Fourth Quarter 2 3/4 1 11/16
As of September 15, 1999 there were approximately 925 holders of record
of the Company's Common Stock.
Except for S Corporation distributions prior to the Merger, no
dividends have been paid on the Company's Common Stock during either of the last
two fiscal years. Steiner is a party to a Loan and Security Agreement with a
commercial bank, loans under which are guaranteed by Metro-Tel and secured by
substantially all of the assets of the Company. Among other things, this
agreement provides that the Company may not declare or pay dividends if such
payment would likely cause it to fail to maintain a specific consolidated debt
service ratio and ratio of consolidated liabilities to tangible net worth.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
---------------------------------------------------------
GENERAL
On November 1, 1998 Steiner-Atlantic Corp. ("Steiner") was merged (the
"Merger") with and into, and therefore became, a wholly owned subsidiary of
Metro-Tel Corp. ("Metro-Tel" and collectively with Steiner and Steiner's
wholly-owned subsidiaries, 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.
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 Report covering periods prior to November 1, 1998
reflect only the results of operation, 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, in addition, include the
results of operations, financial position and cash flows of Metro-Tel from and
after November 1, 1998. Accordingly, the consolidated results of operations for
the year ended December 31, 1997 and six months ended June 30, 1998 do not
reflect the results of telecommunications operations. The consolidated results
for the year ended June 30, 1999 include eight months of telecommunications
operations.
-14-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the six months ended June 30, 1998, cash was provided by a decrease
in accounts and lease receivables ($235,331), a decrease in inventory ($197,145)
and an increase in accounts payable ($450,940). For the year ended June 30,
1999, cash increased by $136,378. Of the $152,191 cash generated by operating
activities $761,476 was provided by net income and $50,615, $33,793 and $61,975
was derived from non-cash expenses for depreciation and amortization, bad debts
and deferred income taxes, respectively. Additional cash was provided by a
decrease in inventory ($289,954), other assets ($63,136) which offset an
increase in accounts and lease receivables ($285,451). Cash was also provided by
an increase in income taxes payable ($80,674). These funds were principally used
to fund a decrease in accounts payable and accrued expenses ($792,618) and
customer deposits ($111,363). Investing activities provided cash of $154,631
reflecting Metro-Tel's cash position of $298,318 at the time of the Merger,
offset by $143,687 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 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 the revolving credit loans. No
revolving credit loans were outstanding on June 30, 1999. The term loan is
payable in monthly installments of $40,000 plus interest, commencing January
1999 with a $960,000 balloon payment in January 2002. 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 loan, as well as to fund the remaining Subchapter
S distributions ($727,394) payable to the former shareholders of Steiner.
Installment payments of $280,000 have been made for the year ended June 30, 1999
on the new term loan. In addition, the Company recieved $51,563 from the
exercise of stock options and advanced $198,000 to an affiliated company. The
foregoing resulted in $170,444 being used by financing activities. The Company
believes that its present cash and cash it expects to generate from operations
will be sufficient to meet its operational needs. In July of 1999, the Company
acquired certain assets of DRYCLEAN USA for $550,000 cash (see Note 14 of the
Notes to Consolidated Financial Statements.)
RESULTS OF OPERATIONS
- ---------------------
The statement of operations contained in the financial statements
contained in Item 7 of this Report include (i) the year ended June 30, 1999,
(ii) the six months ended June 30, 1998 and (iii) the year ended December 31,
1997. In order for the discussion and analysis of the results of operations for
the year ended June 30, 1999 that follows to compare periods of similar
duration, the discussion and analysis compares the Company's consolidated
results for the year ended June 30, 1999 to the twelve month period ended June
30, 1998. The following table sets forth the Company's consolidated
-15-
<PAGE>
results of operations for the year ended June 30, 1999 (which appear in Item 7
of this Report) and for the twelve months ended June 30, 1998 (which financial
statements are not included herein).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended For the 12 months
June 30, 1999 ended June 30, 1998
------------------- --------------------
(unaudited)
<S> <C> <C>
Net sales $17,985,847 $15,329,507
Management fees, commissions
and other income 488,951 360,483
- -------------------------------------------------------------------------------------------------------
Total revenues 18,474,798 15,689,990
Cost of goods sold 13,178,610 11,427,933
- -------------------------------------------------------------------------------------------------------
Gross profit 5,296,188 4,262,057
Selling, general and
administrative expenses 3,863,427 3,720,081
Research and development 171,354
- -------------------------------------------------------------------------------------------------------
4,034,781 3,720,081
Operating Income 1,261,407 541,976
Interest income 62,080 84,957
Interest expense (171,521) (51,709)
- -------------------------------------------------------------------------------------------------------
(109,441) 33,248
Earnings before provision for income taxes $1,151,966 $575,224
========= =======
</TABLE>
-16-
<PAGE>
Net sales for the fiscal year ended June 30, 1999 increased by $2,656,340
(17.3%) over the twelve months ended June 30, 1998 due to the inclusion of
telecommunications sales of $2,048,593 and increased sales of laundry equipment,
steam boilers and spare parts partially offset by a reduction in sales of dry
cleaning equipment. Price increases were immaterial.
Management fees, commissions and other income increased by $128,468
(35.6%) in fiscal 1999 over the twelve months ended June 30, 1998 due
principally to an increase in management fees from an affiliated company
resulting from increased turn-key operations sales.
The Company's gross profit margin, expressed as a percentage of net sales,
increased to 29.4% in fiscal 1999 from 27.8% in the twelve months ended June
30,1998. The increase was mainly due to the inclusion of telecommunications
sales, which historically have a higher margin. Steiner's gross profit margin
improved in fiscal 1999 over fiscal 1998 principally due to increased sales of
higher margined products.
Selling, general and administrative expenses increased by $143,346 (3.9%)
in fiscal 1999 over the twelve months ended June 30,1998 due to the inclusion of
Metro-Tel's selling, general and administrative expenses ($734,203) offset by a
reduction of $586,109 in general and administrative expenses for Steiner caused
by a decrease in executive compensation as a result of the Merger. However,
expressed as a percentage of revenues, selling, general and administrative
expenses declined from 23.7% of total revenues for the twelve months ended June
30, 1998 to 20.9% of total revenues in fiscal 1999. The percentage improvement
results from spreading such costs over the higher revenue base.
Research and development expenses relate solely to the telecommunications
operations following the Merger. The Company anticipates that research and
development in fiscal year 2000 should be similar to the preceding twelve
months.
Interest expense increased by $119,812 (231.7%) in fiscal 1999 over the
twelve months ended June 30, 1998 due primarily to the higher level of
borrowings following the Merger, as discussed under "Liquidity and Capital
Resources," above.
A provision for income taxes is reflected only for fiscal 1999. Prior to
the Merger, Steiner was a Subchapter S Corporation under the Internal Revenue
Code of 1986, as amended, and, accordingly, its shareholders, rather than it,
were subject to income taxation on Steiner's earnings. (See Note 5 of the Notes
to Consolidated Financial Statements.)
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 carried out certain tests of its accounts receivable and accounts payable
files which are date sensitive and found all systems to operate properly. The
-17-
<PAGE>
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.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1998, the Financial Accountant Standard Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged assets or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to materially affect its financial
statements.
ITEM 7. FINANCIAL STATEMENTS.
--------------------
-18-
<PAGE>
Metro-Tel Corp. and Subsidiaries
Index to Consolidated Financial Statements
Page No.
Report of Independent Certified Public Accountants 20
Consolidated Balance Sheets at June 30, 1999 and 1998 21
Consolidated Statements of Income for the year ended June 30, 1999, 22
the six months ended June 30, 1998 and the year ended December 31, 1997
Consolidated Statements of Shareholders' Equity for the year June 30, 1999, 23
the six months ended June 30, 1998 and the year ended December 31, 1997
Consolidated Statements of Cash Flows for the year ended June 30, 1999, 24
the six months ended June 30, 1998 and the year ended December 31, 1997
Summary of Significant Accounting Policies 25
Notes to Consolidated Financial Statements 29
19
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Metro-Tel Corp.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Metro-Tel Corp.
and subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for the year ended
June 30, 1999, the six months ended June 30, 1998 and the year ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metro-Tel Corp.
and subsidiaries at June 30, 1999 and 1998, and the consolidated results of
their operations and their cash flows for the year ended June 30, 1999, the six
months ended June 30, 1998 and the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
Miami, Florida BDO Seidman, LLP
August 11, 1999
20
<PAGE>
<TABLE>
<CAPTION>
Metro-Tel Corp. and Subsidiaries
Consolidated Balance Sheets
JUNE 30, JUNE 30,
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 6)
CURRENT ASSETS
Cash and cash equivalents $ 964,768 $ 828,390
Accounts receivable, net of $25,000
allowance for doubtful accounts in 1999 1,741,698 981,432
Lease receivables (Note 2) 116,927 161,007
Inventories (Note 3) 4,243,348 2,911,158
Deferred income tax asset (Note 5) 43,141 -
Other current assets (Note 7) 143,885 67,238
- --------------------------------------------------------------------------------------------------------------
Total current assets 7,253,767 4,949,225
LEASE RECEIVABLES - due after one year (Note 2) 90,882 148,651
EQUIPMENT AND IMPROVEMENTS, at cost - net of accumulated
depreciation and amortization (Note 4) 333,705 146,461
DEFERRED INCOME TAX ASSET (Note 5) 22,884 -
- --------------------------------------------------------------------------------------------------------------
$ 7,701,238 $ 5,244,337
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 6) $ - $ 1,000,000
Accounts payable and accrued expenses (Note 7) 1,266,838 1,494,975
Income taxes payable 80,674 -
Customer deposits 278,008 389,371
Current portion of term loan (Note 6) 440,000 200,000
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 2,065,520 3,084,346
TERM LOAN, less current portion (Note 6) 1,680,000 216,613
- --------------------------------------------------------------------------------------------------------------
Total liabilities 3,745,520 3,300,959
- --------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 7, 9, 10 and 14)
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 1, 11 and 12) Common stock, $0.025 par value:
Authorized shares - 15,000,000; 6,951,250 and 4,720,954
shares issued, including shares held in
treasury 173,781 118,024
Additional paid-in capital 1,974,227 51,726
Retained earnings 1,807,710 1,448,950
Undistributed shareholders' earnings - 324,678
Treasury shares, 26,250 shares in 1999, at cost - -
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,955,718 1,943,378
- --------------------------------------------------------------------------------------------------------------
$ 7,701,238 $ 5,244,337
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting pollicies and notes to
consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Metro-Tel Corp. and Subsidiaries
Consolidated Statements of Income
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 17,985,847 $ 7,747,321 $ 14,093,632
Management fee, commissions and other income (Note 7) 488,951 237,388 195,809
- ------------------------------------------------------------------------------------------------------------------
Total 18,474,798 7,984,709 14,289,441
- ------------------------------------------------------------------------------------------------------------------
COST OF SALES 13,178,610 5,712,805 10,344,113
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 7 and 9) 3,863,427 1,841,592 3,474,421
RESEARCH AND DEVELOPMENT 171,354 - -
- ------------------------------------------------------------------------------------------------------------------
Total 17,213,391 7,554,397 13,818,534
- ------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,261,407 430,312 470,907
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 62,080 40,390 100,158
Interest expense (171,521 ) (26,509 ) (60,940 )
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (109,441 ) 13,881 39,218
- ------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 1,151,966 444,193 510,125
PROVISION FOR INCOME TAXES (Note 5) 390,490 - -
- ------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 761,476 $ 444,193 $ 510,125
- ------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.12 $ 0.09 $ 0.11
Diluted earnings per share $ 0.12 $ 0.09 $ 0.11
Weighted average number of shares of
common stock outstanding:
Basic 6,165,318 4,720,954 4,720,954
Diluted 6,491,450 4,720,954 4,720,954
PRO FORMA AMOUNTS (UNAUDITED):
Earnings before income taxes $ 1,151,966 $ 444,193 $ 510,125
Provision for income taxes 493,490 170,939 195,555
- ------------------------------------------------------------------------------------------------------------------
PRO FORMA NET EARNINGS $ 658,476 $ 273,254 $ 314,570
- ------------------------------------------------------------------------------------------------------------------
Pro forma basic earnings per share $ 0.11 $ 0.06 $ 0.07
Weighted average number of shares of common stock
outstanding 6,165,318 4,720,954 4,720,954
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting pollicies and notes to
consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Metro-Tel Corp. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Note 1)
ADDITIONAL UNDISTRIBUTED
COMMON STOCK PAID-IN TREASURY STOCK RETAINED SHAREHOLDERS'
-------------------- --------------------
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Balance at December 31, 1996 4,720,954 $ 118,024 $ 51,726 $ - $ 1,448,950 $ 1,907,837 $ 3,526,537
Distributions - - - - - (600,000 ) (600,000 )
Net income - - - - - 510,125 510,125
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,720,954 118,024 51,726 - 1,448,950 1,817,962 3,436,662
SIX MONTHS ENDED JUNE 30, 1998:
Distributions - - - - - (1,937,477 ) (1,937,477 )
Net income - - - - - 444,193 444,193
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 4,720,954 118,024 51,726 - 1,448,950 324,678 1,943,378
YEAR ENDED JUNE 30, 1999:
Distributions - - - - - (727,394 ) (727,394 )
Reclassification of cumulative
undistributed earnings applicable
to the Company's S corporation
status - - - - (402,716 ) 402,716 -
Stock exchanged for acquisition of
business 2,180,296 54,507 1,872,188 26,250 - - - 1,926,695
Stock options exercised 50,000 1,250 50,313 - - - - 51,563
Net income - - - - 761,476 - 761,476
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 6,951,250 $ 173,781 $1,974,227 26,250 $ - $ 1,807,710 $ - $ 3,955,718
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting pollicies and notes to
consolidated financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
Metro-Tel Corp. and Subsidiaries
Consolidated Statements of Cash Flows
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 761,476 $ 444,193 $ 510,125
Adjustments to reconcile net income to net cash
provided by operating activities, net of effect of
acquisition:
Bad debt expense 33,793 79,730 21,799
Depreciation and amortization 50,615 15,621 34,643
Deferred income taxes 61,975 - -
(Increase) decrease in:
Accounts and lease receivables (285,451 ) 235,331 (373,356 )
Inventories 289,954 197,145 73,249
Other assets 63,136 65,526 (14,845 )
Increase (decrease) in:
Accounts payable and accrued expenses (792,618 ) 450,940 70,597
Income taxes payable 80,674 - -
Customer deposits (111,363 ) 85,093 124,406
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 152,191 1,573,579 446,618
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to equipment and improvements (143,687 ) (15,043 ) (30,406 )
Cash of acquired company 298,318 - -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 154,631 (15,043 ) (30,406 )
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit (net) (1,000,000 ) 500,000 500,000
Payments on term loans (696,613 ) (100,000 ) (216,720 )
Borrowings under term loan 2,400,000 - -
Advances (to) from affiliate (198,000) 175,000 (50,000 )
Cash distributions to shareholders (727,394 ) (1,937,477 ) (600,000 )
Proceeds from exercise of stock options 51,563 - -
- -------------------------------------------------------------------------------------------------------------------
Net cash (used for) financing activities (170,444 ) (1,362,477 ) (366,720 )
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 136,378 196,059 49,492
Cash and cash equivalents at beginning of period 828,390 632,331 582,839
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 964,768 $ 828,390 $ 632,331
- -------------------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash paid for:
Interest $ 171,521 $ 26,509 $ 60,940
Income taxes 239,311 - -
- -------------------------------------------------------------------------------------------------------------------
Non-cash Transaction:
Acquisition of business, net of cash of acquired company $ 1,628,377 $ - $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting pollicies and notes to
consolidated financial statements.
24
<PAGE>
Metro-Tel Corp. and Subsidiaries
Summary of Significant Accounting Policies
NATURE OF BUSINESS Metro-Tel Corp. and subsidiaries
(collectively, the "Company") are engaged in
the sale of commercial and industrial laundry
and dry cleaning equipment, boilers and
replacement parts, acting as a business
broker in connection with the purchase and
sale of retailing dry cleaning stores and the
manufacture and sale of telephone test
equipment and customer premise equipment, as
well as related accessories.
The Company primarily sells to customers
located in the United States, the Caribbean
and Latin America.
PRINCIPLES OF The accompanying consolidated financial
CONSOLIDATION statements include the accounts of Metro-Tel
Corp. and its wholly-owned subsidiaries.
Intercompany transactions and balances have
been eliminated in consolidation.
REVENUE RECOGNITION Sales are recorded as products are shipped.
Inventories are valued at the lower of cost
INVENTORIES or market determined on the first-in
first-out method.
EQUIPMMENT, Property and equipment are stated at cost.
IMPROVEMENTS AND Depreciation and amortization are calculated
DEPRECIATION on accelerated and straight-line methods over
lives of five to seven years for furniture
and equipment and the life of the lease for
leasehold improvements for both financial
reporting and income tax purposes, except for
leasehold improvements which are amortized
over 31 years for income tax purposes.
25
<PAGE>
Metro-Tel Corp. and Subsidiaries
Summary of Significant Accounting Policies
INCOME TAXES Through October 31, 1998, Steiner-Atlantic
Corp. ("Steiner," a wholly-owned subsidiary
of the Company, the income of which, as
explained in Note 1, represented the
Company's entire reportable income for
financial reporting purposes for periods
prior to November 1, 1998, with the consent
of its shareholders, elected to be taxed as
an S Corporation under the provisions of
Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"). Shareholders
of an S Corporation are taxed on their
proportionate share of the company's taxable
income. Accordingly, no provision for federal
or state income tax is required for periods
prior to October 31, 1998. Had the Company
been treated as a C Corporation, the Company
would have incurred approximately $103,000 of
additional income taxes during the year ended
June 30, 1999.
For the purpose of the provision for income
taxes, the Company has adopted the provisions
of Statement of Financial Accounting
Standards (SFAS) 109, Accounting for Income
Taxes for all periods presented. Under the
asset and liability method of SFAS 109,
deferred taxes are recognized for differences
between consolidated financial statements and
income tax bases of assets and
liabilities.
STATEMENT OF For purposes of this statement, cash
CASH FLOWS equivalents include all highly liquid
investments with original maturities of
three months or less.
ESTIMATES The preparation of consolidated financial
statements in conformity with generally
accepted accounting principles requires
management to make estimates and assumptions
that affect the reported amounts of assets
and liabilities and disclosure of contingent
assets and liabilities at the date of the
consolidated financial statements and the
reported amounts of revenues and expenses
during the reporting period. Actual results
could differ from those estimates.
26
<PAGE>
Metro-Tel Corp. and Subsidiaries
Summary of Significant Accounting Policies
EARNINGS PER SHARE The Company has adopted the provisions of
Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share, for all
periods presented. SFAS No. 128 requires a
dual presentation of basic and diluted
earnings per share. See Note 11.
Basic earnings per share are computed on the
basis of the weighted average number of
common shares outstanding during each year.
Diluted earnings per share are computed on
the basis of the weighted average number of
common shares and dilutive securities
outstanding. Securities having an
antidilutive effect on earnings per share are
excluded from the calculation of diluted
earnings per share.
The weighted average number of common shares
outstanding for all periods presented
retroactively reflects the effects of the
recapitalization of the Company as described
in Note 1.
FAIR VALUE OF The Company's financial instruments consist
FINANCIAL principally of cash, accounts receivable,
INSTRUMENTS leases receivables, accounts payable and
accrued expenses and debt. The carrying
amounts of such financial instruments as
reflected in the balance sheets approximate
their estimated fair value. The estimated
fair value is not necessarily indicative of
the amounts the Company could realize in
a current market exchange or of future
earnings or cash flows.
27
<PAGE>
Metro-Tel Corp. and Subsidiaries
Summary of Significant Accounting Policies
NEW ACCOUNTING In June 1998, the Financial Accounting
PRONOUNCEMENTS Standard Board issued SFAS No. 133,
Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires
companies to recognize all derivatives
contracts as either assets or liabilities in
the balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated as
a hedge, the objective of which is to match
the timing of gain or loss recognition on the
hedging derivative with the recognition of
(i) the changes in the fair value of the
hedged assets or liability that are
attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted
transaction. For a derivative not designated
as a hedging instrument, the gain or loss is
recognized in income in the period of change.
SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June
15, 2000.
Historically, the Company has not entered
into derivatives contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standard to materially
affect its financial statements.
28
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. ACQUISITION AND On November 1, 1998, Metro-Tel completed a
REORGANIZATION merger in which a wholly-owned subsidiary was
merged with and into Steiner. In connection
therewith, Metro-Tel exchanged 4,720,954
shares of its common stock for all of the
outstanding shares of common stock of Steiner
and Steiner became a wholly-owned subsidiary
of the Company. In addition, Metro-Tel
granted options for the purchase of up to
500,000 shares of its common stock to
employees of Steiner.
For financial accounting purposes, this
transaction was accounted for as a reverse
acquisition of Metro-Tel Corp. by Steiner. In
this connection, historical amounts, shares
and per share amounts for Steiner have been
retroactively adjusted to reflect the
foregoing exchange of shares.
The purchase of Metro-Tel Corp. was valued at
approximately $1,926,000, an amount equal to
the fair market value of the Company's
outstanding common shares. This acquisition
was accounted for under the purchase method,
whereby the purchase price was allocated to
the underlying assets and liabilities of
Metro-Tel based upon their estimated fair
values. The transaction was recorded as
follows:
Fair value of net assets acquired:
Current assets $ 2,520,898
Other assets 150,278
--------------------------------------------
Total 2,671,176
Less liabilities assumed (744,481)
--------------------------------------------
Net $ 1,926,695
--------------------------------------------
29
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
The consolidated statement of income includes
the results of operations of the acquired
business (Metro-Tel Corp.) from November 1,
1998.
The following unaudited pro forma summary
presents the consolidated results of
operations of the Company as if the
acquisition had occurred on July 1, 1998, and
the Company's S Corporation status had been
terminated as of that date:
30
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
YEAR ENDED JUNE 30, 1999
---------------------------------------------
Pro forma revenues $19,751,668
---------------------------------------------
Pro forma net earnings $ 917,275
---------------------------------------------
Pro forma basic earnings
per share $ 0.15
---------------------------------------------
Pro forma diluted earnings
per share $ 0.14
---------------------------------------------
2. LEASE RECEIVABLES Lease receivables result from customer leases
of equipment under arrangements which qualify
as sales-type leases. At June 30, 1999,
annual future lease payments, net of deferred
interest ($35,680 at June 30, 1999), due
under these leases are as follows:
YEARS ENDING JUNE 30,
----------------------------------------------
2000 $ 116,927
2001 48,342
2002 29,205
2003 10,480
2004 2,542
Thereafter 313
----------------------------------------------
$ 207,809
----------------------------------------------
3. INVENTORIES The components of inventories are summarized
as follows:
JUNE 30, 1999 1998
----------------------------------------------
Raw materials $ 713,867 $ -
Work-in-process 180,947 -
Finished goods 3,348,534 2,911,158
----------------------------------------------
$ 4,243,348 $ 2,911,158
----------------------------------------------
31
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
4. EQUIPMENT AND Major classes of equipment and improvements
IMPROVEMENTS consist of the following:
JUNE 30, 1999 1998
----------------------------------------------
Furniture and equipment $661,407 $448,578
Leasehold improvements 262,714 237,682
----------------------------------------------
Total 924,121 686,260
Less accumulated depreciation
and amortization 590,416 539,799
----------------------------------------------
$333,705 $146,461
----------------------------------------------
5. INCOME TAXES The following are the components of income tax
expense:
YEAR ENDED JUNE 30, 1999
----------------------------------------------
Current
Federal $ 280,499
State 48,016
----------------------------------------------
328,515
----------------------------------------------
Deferred
Federal 50,087
State 11,888
----------------------------------------------
61,975
----------------------------------------------
Total $ 390,490
----------------------------------------------
32
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
The reconciliation of income tax expense
computed at the United States federal
statutory tax rate of 34% to the provision
for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
----------------------------------------------------------------------
------------ ---------------
HISTORICAL PRO FORMA
------------ ---------------
<S> <C> <C>
Tax at the statutory rate $ 391,668 $ 391,668
Tax effect of S Corporation status (103,000 ) -
State income taxes,
net of federal benefit 50,222 50,222
Income taxes attributable to
termination of S Corporation
status 21,427 21,427
Other 30,173 30,173
------------------------------------------------------------------------
Total $ 390,490 $ 493,490
------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax
effect of temporary differences between
carrying amounts of assets and liabilities
for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Company's
current and noncurrent deferred tax assets at
June 30, 1999 are as follows:
Current Deferred Tax Asset:
Allowance for doubtful accounts $ 9,408
Inventory 25,174
Other 8,559
----------------------------------------------
43,141
----------------------------------------------
Noncurrent Deferred Tax Asset:
Depreciation 16,271
Other 6,613
----------------------------------------------
22,884
----------------------------------------------
Total deferred tax asset $ 66,025
----------------------------------------------
33
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
6. CREDIT AGREEMENT The Company had a credit agreement with a
commercial bank which provided for a line of
credit of $2,250,000 and a term loan of
$1,000,000. On November 2, 1998, the Company
entered into a new loan agreement with the
same lender and paid off the outstanding
balances on its then existing line of credit
and term loan with the proceeds from the new
loan. The new loan includes a line of credit
of $2,250,000 and a term loan of $2,400,000.
Borrowings under the agreement bear interest
at the Adjusted LIBOR Market Index Rate
(7.75% at June 30, 1999) and are
collateralized by substantially all of the
Company's assets. The line of credit is due
on demand. The term loan is due January 2002.
At June 30, 1999, the Company had no
outstanding borrowings under its line of
credit and therefore could borrow $2,250,000,
and owed $2,120,000 under the term loan. The
term loan requires monthly payments of
$40,000 plus interest, with a $960,000
balloon payment January 2002. The agreement
requires maintenance of certain financial
ratios and contains other restrictive
covenants.
7. RELATED PARTY During the year ended June 30, 1999, the six
TRANSACTIONS months ended June 30, 1998 and the year ended
December 31, 1997, the Company charged
management fees of $265,000, $150,000 and
$40,000, respectively, to an entity
controlled by one of the principal
shareholders of the Company. At June 30,
1998, $175,000 is due to such company and is
included in accounts payable and accrued
expenses in the accompanying balance sheet.
At June 30, 1999, $23,000 is due from such
company and is included in other current
assets in the accompanying balance sheet.
Advances to or from such affiliate are
non-interest bearing and are due on demand.
The Company leases warehouse and office space
from a principal shareholder of the Company
under an operating lease which expires in
October 2004. Minimum annual rental
commitments under this lease approximate
$95,000.
34
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
8. CONCENTRATIONS OF The Company places its excess cash in
CREDIT RISK overnight deposits with a large national
bank. Concentration of credit risk with
respect to trade and lease receivables is
limited due to a large customer base. Trade
and lease receivables are generally
collateralized with equipment sold.
9. COMMITMENTS Rent
The Company leases additional office and
warehouse space under operating leases,
including a lease on a monthly basis. The
leases expire in December 1999 (with an
option to renew for an additional three year
period), March 2002 and October 2004 (with an
option to renew for a period of ten years at
a rent to be agreed upon). Minimum future
rental commitment for leases in effect at
June 30, 1999, including leases to related
parties, approximates the following:
YEARS ENDING JUNE 30,
----------------------------------------------
2000 $ 277,499
2001 272,596
2002 230,665
2003 95,196
2004 95,196
Thereafter 31,732
----------------------------------------------
$ 1,002,884
----------------------------------------------
35
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Rent expense, including rentals paid to a
related party, aggregated $232,013, $71,650
and $141,700 for the year ended June 1999,
the six months ended June 1998 and the year
ended December 31, 1997, respectively.
Royalty Agreements
The Company is presently obligated pursuant
to two royalty agreements to pay, under one
agreement, the greater of 10% of sales of
certain products or $75,000 per year and,
under the other agreement, 10% of annual
sales of certain products. The agreements may
be cancelled by the Company annually upon
sixty days notice. Royalty expense aggregated
$54,640 during the year ended June 30, 1999.
10. DEFERRED The Company adopted a participatory deferred
COMPENSATION compensation plans wherein it matches
PLAN employee contributions up to, at the
Company's option for all employees determined
annually, 1% or 2% of an eligible employee's
yearly compensation. All employees are
eligible to participate in the plan after one
year or three months of service. The Company
contributed $18,657, $5,735, and $10,792 for
the fiscal year ended June 30, 1999, the six
months ended June 30, 1998 and year ended
December 31, 1997, respectively. The plan is
tax exempt under Section 401(k) of the
Internal Revenue Code.
The Company also maintains a profit-sharing
plan which covers substantially all
employees. Annual contributions are
determined at the discretion of the Board of
Directors. There were no contributions for
the year ended June 30, 1999, the six months
ended June 30, 1998 or the year ended
December 31, 1997.
11. EARNINGS PER SHARE The following reconciles the components of
the earnings per share computation:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $761,476 6,165,318 $0.12
Effect of dilutive securities:
Stock options - 326,132 -
-----------------------------------------------------------------------------
Net earnings plus assumed dilution $761,476 6,491,450 $0.12
-----------------------------------------------------------------------------
</TABLE>
For the six months ended June 30, 1998 and
the year ended December 31, 1997, there were
no dilutive securities.
36
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
12. STOCK OPTIONS At June 30, 1999, the Company has in effect
two stock option plans that authorize the
grant of options to purchase 850,000 and
100,000 shares, respectively, of the
Company's common stock to employees and
non-employee directors of the Company,
respectively. The Company applies APB Opinion
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations in accounting for
stock options. Under APB Opinion 25, because
the exercise price of the Company's stock
options equals or exceeds the market price of
the underlying stock on the date of grant, no
compensation cost has been recognized.
Pursuant to the employee plan, the Company
may grant incentive stock options and
nonqualified stock options. Incentive stock
options granted under the plans are subject
to the restriction that the aggregate fair
market value (determined as of the date of
grant) of options which may first become
exercisable in any calendar year cannot
exceed $100,000. All options under
non-employee director plan are nonqualified
stock options. Options granted have maximum
terms of not more than 10 years and are not
transferable and must be granted at an
exercise price of at least 100% of the market
value of the common stock on the date of
grant. Incentive stock options granted to an
individual owning more than 10 percent of the
total combined voting power of all classes of
stock issued by the Company must have an
exercise price of at least equal to 110
percent of the fair market value of the
shares issuable on the date of the grant and
may not be exercisable more than five years
after the grant date. Generally, options
terminate three months following termination
of service (except generally one year in the
case of termination of service by reason of
death or disability).
Generally, the Company's options are
exercisable one-fourth on the first
anniversary of such grant and one-fourth on
the next three anniversaries of such grant.
However, options granted under the
non-employee directors plan become
immediately exercisable upon certain events
which are deemed to be a "change in control"
of the Company. Options granted under the
employee plan terminate upon "change in
control" unless acted upon by the board of
directors.
In fiscal 1999, the Company granted a total
of 565,000 options to employees, exercisable
at prices of $1.00 or $2.00 per share. In
addition, the Company granted a total of
30,000 options to directors, exercisable at
prices of $0.91 or $2.00 per share.
37
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
FASB Statement 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," requires the
Company to provide pro forma information
regarding net income and net income per share
as if compensation cost for the Company's
stock options had been determined in
accordance with the fair value based method
prescribed in FASB Statement 123. The Company
estimates the fair value of each stock option
at the grant date by using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for grants
in fiscal year 1999: no dividend yield
percent; expected volatility of 46.1%;
risk-free interest rates of approximately
6.36%, and expected lives of 5 years.
Under the accounting provisions of FASB
Statement 123, the Company's net income and
net income per common share would have been
as follows:.
YEAR ENDED
JUNE 30, 1999
----------------------------------------------
Net income As reported $ 761,476
Pro forma $ 761,081
Net income per
common share -
basic and diluted As reported $ .12
Pro forma $ .12
A summary of the status of the Company's
stock option plan and non-plan options as of
June 30, 1999, and changes during the year
then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 225,000 $ 0.98
Granted 595,000 1.12
Exercised (50,000 ) 1.03
Expired (50,000 ) 0.97
------------------------------------------------------------
Outstanding at end of year 720,000 1.10
------------------------------------------------------------
Options exercisable at year-end 125,000 0.97
Weighted-average fair value per share of
options granted during the year $ 1.12
------------------------------------------------------------
</TABLE>
The following table summarizes information
about the stock option plan and non-plan
options outstanding at June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 6/30/99 LIFE PRICE 6/30/99 PRICE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.81-2.00 720,000 4.35 $ 1.10 125,000 $ 0.97
</TABLE>
38
<PAGE>
Metro-Tel Corp. and Subsidiaries
Notes to Consolidated Financial Statements
13. SEGMENT The Company's reportable segments are
INFORMATION strategic businesses that offer different
products and services. They are managed
separately because each business requires
different technology and marketing
strategies. The Company primarily evaluates
the operating performance of its segments
based on the categories noted in the table
below. The Company has no sales between
segments.
For the years ended June 30, 1999, the six
months ended June 30, 1998 and the year ended
December 31, 1997, export sales, principally
to the Caribbean and Latin America,
aggregated approximately $3,443,000,
$2,430,610 and $3,949,512, respectively. No
single customer accounted for more than 10%
of the Company's revenues.
Financial information for the Company's
business segments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Commercial and industrial laundry
dry cleaning equipment $ 16,426,205 $ 7,984,709 $ 14,289,441
Manufacturing and sales of
telephone test equipment 2,048,593 - -
-------------------------------------------------------------------------------
Total revenues $ 18,474,798 $ 7,984,709 $ 14,289,441
-------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry
and dry cleaning equipment $ 1,556,895 $ 430,312 $ 470,907
Manufacturing and sales of
telephone test equipment (295,488) - -
-------------------------------------------------------------------------------
Total operating income (loss) $ 1,261,407 $ 430,312 $ 470,907
-------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $ 6,016,193 $ 5,244,337
Manufacturing and sales of
telephone test equipment 1,685,545 -
----------------------------------------------------------------
Total assets $ 7,701,738 $ 5,244,337
----------------------------------------------------------------
</TABLE>
14. SUBSEQUENT On July 9, 1999, the Company entered into an
EVENTS asset purchase agreement with Dryclean
U.S.A., Franchise Company to purchase the
worldwide rights to the name Dryclean U.S.A.,
along with existing franchise and license
agreements for $550,000 cash.
39
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------------------
On January 4, 1999, the Company selected BDO Seidman, LLP ("BDO
Seidman") to replace Grant Thornton LLP ("Grant Thornton") as the Company's
independent public accountants. BDO Seidman has acted as independent accountants
for Steiner, which became a wholly-owned subsidiary of the Company pursuant to
the Merger. The Company believes that the change to BDO Seidman as the Company's
independent accountants will facilitate the audit of the Company's consolidated
financial statements. The decision to change auditors was approved by the Audit
Committee of the Board of Directors.
Grant Thornton's report on the financial statements of the Company for
each of the past two fiscal years did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
During the Company's two most recent fiscal years, and the subsequent
interim period through January 4, 1999, there were no disagreements with Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Grant Thornton, would have caused Grant
Thornton to make reference to the subject matter of the disagreements in
connection with their audit report with respect to financial statements of the
Company either individually or consolidated with Steiner.
During the Company's two most recent fiscal years, and the subsequent
interim period through January 4, 1999, Grant Thornton did not advise the
Company of any of the items listed in Item 304(a)(1)(iv)(B) of Regulations S-K.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
-------------------------------------------------------------
The following information is presented with respect to the background
of each of the directors and executive officers of the Company:
Michael S. Steiner, 43, has been President and Chief Executive Officer
of the Company since the effectiveness of the Merger on November 1, 1998 and of
Steiner since 1988. Mr. Steiner has been a director of the Company since the
effectiveness of the Merger on November 1, 1998.
William K. Steiner, 69, has been Chairman of the Board of Steiner since
he founded Steiner in 1960. Mr. Steiner has been a director of the Company since
the effectiveness of the Merger on
40
<PAGE>
November 1, 1998.
Venerando J. Indelicato, 66, was President of the Company from December
1967 until October 31, 1998 and has been Treasurer and Chief Financial Officer
of the Company since December 1969.
Lloyd Frank, 74, has been a member of the law firm of Parker Chapin
Flattau & Klimpl, LLP since 1977. Mr. Frank has been a director of the Company
since 1977. The Company retained Parker Chapin Flattau & Klimpl during the
Company's last fiscal year and is retaining that firm during the Company's
current fiscal year. Mr. Frank is also a director of Park Electrochemical Corp.
David Blyer, 38, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. Mr. Blyer has been Chief
Executive Officer and President of Vento Software, since he co-founded that
company in 1994. Vento Software develops software for specialized business
application. Before founding Vento Software, Mr. Blyer served as Senior Account
Manager of the South Florida and Caribbean regions for Tandem Computers.
Alan M. Grunspan, 39, has served as a director of the Company since May
1999. Mr. Grunspan has been a member of the law firm of Kaufman Miller Dickstein
& Grunspan P.A. The Company has retained Kaufman Miller Dickstein & Grunspan
P.A. during the Company's last fiscal year and is retaining that firm during the
Company's current fiscal year.
Stuart Wagner, 67, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998 and has been retained as a
consultant for Diversitech Corp. since 1997. From 1975 to 1997, Mr. Wagner
served as President of Wagner Products Corp., a manufacturer and distributor of
products in the HVAC industry, a company which he founded.
Mr. Michael S. Steiner is the son of Mr. William K. Steiner. There are
no other family relationships among any of the directors and executive officers
of the Company. All directors serve until the next annual meeting of
stockholders and until the election and qualification of their respective
successors. All officers serve at the pleasure of the Board of Directors.
The following information is presented with respect to the background
of each person who is not an executive officer but who is expected to continue
to make a significant contribution to the Company:
Osvaldo Rubio, 36, serves as Vice President and Director of Sales for
the Export Department of Steiner since joining Steiner in May 1993.
Ronald London, 66, serves as Vice President and primarily overseas
sales of the retail Dry-cleaning Equipment Department of Steiner since joining
Steiner in September 1992.
Jerry Kotacka, 54, serves as Corporate Secretary and Director of Sales
of the Laundry
41
<PAGE>
Equipment Department of Steiner since joining Steiner in June 1983.
Howard Perera, 46, has served as the Company's Director of Engineering,
engaged in the design and development of new telecommunications products since
joining the Company in September 1993.
Jon D. Robinette, 41, has, since July 1995, served as General Manager
of the Company's telecommunications operations, responsible for managing and
coordinating operations in the Company's Milpitas, California facility. Prior
thereto, Mr. Robinette served as Operations Manager for the Company's
telecommunications operations from October 1984.
ITEM 10. EXECUTIVE COMPENSATION.
- ------- ----------------------
The information called for by this Item will be contained in
the Company's definitive Proxy Statement with respect to the Company's 1999
Annual Meeting of Stockholders to be filed pursuant to Regulation l4A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
42
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- --------------------------------------------------------------
The information called for by this Item will be contained in
the Company's definitive Proxy Statement with respect to the Company's 1999
Annual Meeting of Stockholders to be filed pursuant to Regulation l4A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- ----------------------------------------------
The information called for by this Item will be contained in
the Company's definitive Proxy Statement with respect to the Company's 1999
Annual Meeting of Stockholders to be filed pursuant to Regulation l4A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) Exhibits
2(a) Agreement of Merger dated as of July 1, 1998 among the
Company, Metro-Tel Acquisition Corp., Steiner-Atlantic
Corp., William K. Steiner and Michael S. Steiner.
Incorporated by reference to Exhibit A of the definitive
Proxy Statement of the Company filed with the Commission on
October 5, 1998, File No. 0-9040.)
3(a)(1) Certificate of Incorporation of the Company, as filed with
the Secretary of State of the State of Delaware on June 30,
1963. (Incorporated by reference to Exhibit 4.1(a) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(2) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on March 27, 1968.
(Incorporated by reference to Exhibit 4.1(b) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(3) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on November 4, 1983.
(Incorporated by reference to Exhibit 4.1(c) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(4) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on November 5, 1986.
(Incorporated by reference to Exhibit 4.1(d) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
43
<PAGE>
3(a)(5) Certificate of Change of Location of Registered Office and
of Agent, as filed with the Secretary of State of the State
of Delaware on December 31, 1986. (Incorporated by
reference to Exhibit 4.1(e) to the Company's Current Report
on Form 8-K dated (date of earliest event reported) October
29, 1998.)
3(a)(6) Certificate of Ownership and Merger of Design Development
Incorporated into the Company, as filed with the Secretary
of State of the State of Delaware on June 30, 1998.
(Incorporated by reference to Exhibit 4.1(f) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(7) Certificate of Amendment to the Company's Certificate of
Incorporation as filed with the Secretary of State of the
State of Delaware on October 30, 1998. (Incorporated by
reference to Exhibit 4.1(g) to the Company's Current Report
on Form 8-K dated (date of earliest event reported) October
29, 1998.)
4(a)(1) Loan and Security Agreement dated November 2, 1998 between
Steiner-Atlantic Corp. and First Union National Bank.
(Incorporated by reference to Exhibit 4.2(a) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
4(a)(2) Guaranty and Security Agreement dated November 2, 1998 by
the Company in favor of First Union National Bank.
(Incorporated by reference to Exhibit 4.2(b) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
10(a)(1)(i) Lease dated April 1, 1991 between the Company and CB
Institutional Fund VII with respect to the Company's
facilities at 240 South Milpitas Boulevard, Milpitas,
California. (Exhibit 10(a)(2) to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991, File
No. 0-9040.)
10(a)(1)(ii) Second Amendment to Lease dated November 1, 1998 between
the Company and The Realty Associates Fund III, L.P.
(successor-in-interest to CB Institutional Fund VII) with
respect to the Company's facilities at 240 South Milpitas
Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to
the Company's Transition Report on Form 10-KSB for the
transition period from January 1, 1998 to June 30, 1998,
File No. 0-9040.)
10(a)(2) Lease dated October 6, 1995 between Steiner and William, K.
Steiner with respect to Steiner's facilities located 290
N.E. 68th Street, 297 N.E. 67st and 277 N.E. 67 St. Miami,
Florida. (Exhibit 10(a)(2) to the Company's Transition
Report on Form 10-KSB for the transition period from
January 1, 1998 to June 30, 1998, File No. 0-9040.)
44
<PAGE>
10(b)(1)(i)+ Employment Agreement dated July 1, 1981 between the Company
and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995, File No. 0-9040.)
10(b)(1)(ii)+ Amendment No. 1 dated July 1, 1983 to the Employment
Agreement dated July 1, 1981 between the Company and
Venerando J. Indelicato. (Exhibit 10(b)(1)(ii) to the
Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995, File No. 0-9040.)
10(b)(1)(iii)+ Amendment No. 2 dated October 30, 1998 to the Employment
Agreement dated July 1, 1981 between the Company and
Venerando J. Indelicato. (Exhibit 10(b)(1)(iii) to the
Company's Transition Report on Form 10-KSB for the
transition period from January 1, 1998 to June 30, 1998,
File No. 0-9040.)
10(b)(2)+ Letter agreement dated August 29, 1996 between the Company
and Richard A. Wildman, a former executive officer of the
Company. (Exhibit 10(b)(2) to the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1997, File No.
0-9040.)
10(c)(1)+ The Company's 1991 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 99.3 to the Company's
Current Report on Form 8-K dated (date of earliest event
reported) October 29, 1998, File No. 0-9040.)
10(c)(2)(a)+ The Company's 1984 Non-Employee Director Stock Option Plan,
as amended. (Exhibit 10(d)(2) to the Company's Annual
Report on Form 10-K for the year ended June 30, 1987, File
No. 0-9040.)
10(c)(2)(b)+ The Company's 1994 Non-Employee Director Stock Option Plan.
(Exhibit A to the Company's Proxy Statement dated October
14, 1994 used in connection with the Company's 1994 Annual
Meeting of Stockholders, File No. 0-9040.)
10(c)(3)+ Form of Stock Option Agreement dated June 25, 1991 entered
into between the Company and each of Sheppard Beidler
(option has since expired), Lloyd Frank and Michael
Michaelson, together with a schedule identifying the
details in which the actual agreements differ from the
exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
Annual Report on Form 10-K for the year ended June 30,
1991, File No. 0-9040.)
10(c)(4)+ Form of Stock Option Agreement dated May 4, 1993 entered
into between the Company and each of Sheppard Beidler,
Lloyd Frank and Michael Michaelson, together with a
schedule identifying the details in which the actual
agreements differ from the exhibit filed herewith. (Exhibit
10(c)(4) to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1993, File No. 0-9040.)
45
<PAGE>
*27 Financial Data Schedule.
- --------------------
* Filed with this Report or an amendment thereto. All other exhibits are
incorporated herein by reference to the filing indicated in the
parenthetical reference following the exhibit description.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METRO-TEL CORP.
Dated: September 28, 1999
By: /s/ Michael S. Steiner
-----------------------------------
Michael S. Steiner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- --------- ----
<S> <C> <C> <C>
/s/ Michael S. Steiner President, September 28, 1999
- ------------------------------ Chief Executive Officer
Michael S. Steiner (Principal Executive Officer) and
Director
/s/ William K. Steiner Director September 23, 1999
- ------------------------------
William K. Steiner
/s/ Venerando J. Indelicato Chief Financial Officer September 28, 1999
- ------------------------------ (Principal Financial and
Venerando J. Indelicato Accounting Officer) and Director
/s/ Lloyd Frank Director September 28, 1999
- ------------------------------
Lloyd Frank
Director September __, 1999
- ------------------------------
Alan M. Grunspan
Director September __, 1999
- ------------------------------
Stuart Wagner
Director September __, 1999
- ------------------------------
David Blyer
</TABLE>
47
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
2(a) Agreement of Merger dated as of July 1, 1998 between the
Company, Metro-Tel Acquisition Corp., Steiner-Atlantic
Corp., William K. Steiner and Michael S. Steiner.
Incorporated by reference to Exhibit A of the definitive
Proxy Statement of the Company filed with the Commission
on October 5, 1998 (File No. 0-9040.)
3(a)(1) Certificate of Incorporation of the Company, as filed with
the Secretary of State of the State of Delaware on June
30, 1963. (Incorporated by reference to Exhibit 4.1(a) to
the Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(2) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on March 27, 1968.
(Incorporated by reference to Exhibit 4.1(b) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(3) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on November 4, 1983.
(Incorporated by reference to Exhibit 4.1(c) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(4) Certificate of Amendment to the Certificate of
Incorporation of the Company, as filed with the Secretary
of State of the State of Delaware on November 5, 1986.
(Incorporated by reference to Exhibit 4.1(d) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(5) Certificate of Change of Location of Registered Office and
of Agent, as filed with the Secretary of State of the
State of Delaware on December 31, 1986. (Incorporated by
reference to Exhibit 4.1(e) to the Company's Current
Report on Form 8-K dated (date of earliest event reported)
October 29, 1998.)
3(a)(6) Certificate of Ownership and Merger of Design Development
Incorporated into the Company, as filed with the Secretary
of State of the State of Delaware on June 30, 1998.
(Incorporated by reference to Exhibit 4.1(f) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
3(a)(7) Certificate of Amendment to the Company's Certificate of
Incorporation as filed with the Secretary of State of the
State of Delaware on October 30, 1998. (Incorporated by
reference to Exhibit 4.1(g) to the Company's Current
Report on Form 8-K dated (date of earliest event reported)
October 29, 1998.)
<PAGE>
Exhibit
Number Description
- -------- -----------
4(a)(1) Loan and Security Agreement dated November 2, 1998 between
Steiner-Atlantic Corp. and First Union National Bank.
(Incorporated by reference to Exhibit 4.2(a) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
4(a)(2) Guaranty and Security Agreement dated November 2, 1998 by
the Company in favor of First Union National Bank.
(Incorporated by reference to Exhibit 4.2(b) to the
Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
10(a)(1)(i) Lease dated April 1, 1991 between the Company and CB
Institutional Fund VII with respect to the Company's
facilities at 240 South Milpitas Boulevard, Milpitas,
California. (Exhibit 10(a)(2) to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991, File
No. 0-9040.)
10(a)(1)(ii) Second Amendment to Lease dated November 1, 1998 between
the Company and The Realty Associates Fund III, L.P.
(successor-in-interest to CB Institutional Fund VII) with
respect to the Company's facilities at 240 South Milpitas
Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to
the Company's Transition Report on Form 10-KSB for the
transition period from January 1, 1998 to June 30, 1998,
File No. 0-9040.)
10(a)(2) Lease dated October 6, 1995 between Steiner and William, K.
Steiner with respect to Steiner's facilities located 290
N.E. 68th Street, 297 N.E. 67st and 277 N.E. 67 St. Miami,
Florida. (Exhibit 10(a)(2) to the Company's Transition
Report on Form 10-KSB for the transition period from
January 1, 1998 to June 30, 1998, File No. 0-9040.)
10(b)(1)(i)+ Employment Agreement dated July 1, 1981 between the Company
and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995, File No. 0- 9040.)
10(b)(1)(ii)+ Amendment No. 1 dated July 1, 1983 to the Employment
Agreement dated July 1, 1981 between the Company and
Venerando J. Indelicato. (Exhibit 10(b)(1)(ii) to the
Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995, File No. 0-9040.)
10(b)(1)(iii)+ Amendment No. 2 dated October 30, 1998 to the Employment
Agreement dated July 1, 1981 between the Company and
Venerando J. Indelicato. (Exhibit 10(b)(1)(iii) to the
Company's Transition Report on Form 10-KSB for the
transition period from January 1, 1998 to June 30, 1998,
File No. 0-9040.)
<PAGE>
Exhibit
Number Description
- -------- -----------
10(b)(2)+ Letter agreement dated August 29, 1996 between the Company
and Richard A. Wildman, a former executive officer of the
Company. (Exhibit 10(b)(2) to the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1997, File No.
0-9040.)
10(c)(1)+ The Company's 1991 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 99.3 to the Company's
Current Report on Form 8-K dated (date of earliest event
reported) October 29, 1998, File No. 0-9040.)
10(c)(2)(a)+ The Company's 1984 Non-Employee Director Stock Option Plan,
as amended. (Exhibit 10(d)(2) to the Company's Annual
Report on Form 10-K for the year ended June 30, 1987, File
No. 0-9040.)
10(c)(2)(b)+ The Company's 1994 Non-Employee Director Stock Option Plan.
(Exhibit A to the Company's Proxy Statement dated October
14, 1994 used in connection with the Company's 1994 Annual
Meeting of Stockholders, File No. 0-9040.)
10(c)(3)+ Form of Stock Option Agreement dated June 25, 1991 entered
into between the Company and each of Sheppard Beidler
(option has since expired), Lloyd Frank and Michael
Michaelson, together with a schedule identifying the
details in which the actual agreements differ from the
exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
Annual Report on Form 10-K for the year ended June 30,
1991, File No. 0-9040.)
10(c)(4)+ Form of Stock Option Agreement dated May 4, 1993 entered
into between the Company and each of Sheppard Beidler,
Lloyd Frank and Michael Michaelson, together with a
schedule identifying the details in which the actual
agreements differ from the exhibit filed herewith. (Exhibit
10(c)(4) to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1993, File No. 0-9040.)
*27 Financial Data Schedule.
- --------------------
* Filed with this Report or an amendment thereto. All other exhibits are
incorporated herein by reference to the filing indicated in the
parenthetical reference following the exhibit description.
+ Management contract or compensatory plan or arrangement.
<TABLE> <S> <C>
<ARTICLE> 5
<NAME> METRO-TEL CORP.
<CIK> 0000065312
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 964,768
<SECURITIES> 0
<RECEIVABLES> 1,858,625
<ALLOWANCES> 25,000
<INVENTORY> 4,243,348
<CURRENT-ASSETS> 7,253,767
<PP&E> 924,116
<DEPRECIATION> 590,411
<TOTAL-ASSETS> 7,701,238
<CURRENT-LIABILITIES> 2,065,520
<BONDS> 0
0
0
<COMMON> 173,781
<OTHER-SE> 5,461,937
<TOTAL-LIABILITY-AND-EQUITY> 7,701,238
<SALES> 17,985,847
<TOTAL-REVENUES> 18,474,798
<CGS> 13,178,610
<TOTAL-COSTS> 4,034,781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,521
<INCOME-PRETAX> 1,151,966
<INCOME-TAX> 390,490
<INCOME-CONTINUING> 761,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761,476
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
