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 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _________________.
Commission file number 0-9040
METRO-TEL CORP.
---------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 11-2014231
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 South Milpitas Boulevard, Milpitas, CA 95035
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 408-946-4600
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.025 par value
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]
State issuer's revenues for its most recent fiscal year: $4,228,556
The aggregate market value as at September 15, 1996 of the Common
Stock of the issuer, its only class of voting stock, held by non-affiliates was
approximately $1,975,000 calculated on the basis of the closing price of such
stock on the National Association of Securities Dealers Automated Quotation
System 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, 1996 was 2,004,046.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 1996 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]
PART I
ITEM 1. BUSINESS.
- ------- ---------
General
- -------
Metro-Tel Corp. (the "Company") was incorporated under the laws of
the State of Delaware on June 30, 1963. Its executive offices have, since
September 1, 1996, been located at 250 South Milpitas Boulevard, Milpitas,
California 95035, and its telephone number is 408-946-4600.
Since its inception, the Company has been engaged in the manufacture
and sale of telephone test and telephone station equipment utilized by telephone
and telephone interconnect companies in the installation and maintenance of
telephone equipment. Through internal research and development and through
acquisition, the Company has added various product lines to its telephone test
and station equipment product lines.
The downsizing of the Regional Bell Operating Companies ("RBOCs")
during the past several years has reduced the number of telecom craft personnel
who are potential users of the Company's test equipment and, accordingly, the
Company's sales. To reduce the impact thereof, through research and development,
the Company has begun introducing new products aimed at reducing its dependence
on the RBOCs and is entering into new markets, principally the public utility
and data industry, for its existing and new products.
The following table sets forth the approximate net sales of each of
the Company'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 during each
of the three years ended June 30, 1996:
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
(dollars in thousands)
Telephone Test
Equipment $3,387 80% $3,596 85% $3,568 88%
Customer Premise
Equipment 606 14% 287 7% 284 7%
Other Products and
Services 236 6% 346 8% 212 5%
------ ------ ------ ------ ------ ------
$4,229 100% $4,229 100% $4,064 100%
====== ====== ====== ====== ====== ======
TELEPHONE TEST EQUIPMENT. The Company manufactures and sells a line
of telephone test equipment which includes portable test sets, which are
designed for use in locating high resistance
-2-
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, the Company 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 and remote test systems.
CUSTOMER PREMISE EQUIPMENT. The Company 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, the Company has begun distributing 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 telephone
line without the use of a modem.
OTHER PRODUCTS AND SERVICES. In addition, the Company sells a variety
of accessory products, primarily head sets and alligator clips. The Company also
sells spare parts for its product lines and provides repair services for its
products.
Methods of Distribution.
- ------------------------
The Company presently sells its products through its own regional
sales managers who assist the Company's national telephone equipment
distributors. Sales managers are presently based in Georgia and California. In
addition, the Company maintains in-house sales staffs at its facilities in
Milpitas, California.
Competition
- -----------
Competition is high with respect to each of the Company's product
lines. However, as the products contained in such lines are varied and similar
products contain varying features,
-3-
neither the Company 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 the Company's
products is price and product features, with service and warranty having a
relatively less significant impact. The Company believes its product lines are
competitively priced. Many of the Company's competitors have greater financial
resources and have more extensive research and development and marketing staffs
than the Company.
Raw Materials
- -------------
The basic materials used in the manufacture of the Company's
telephone test equipment and telephone station and peripheral telephone
equipment consist of electronic components. The Company utilizes many suppliers
and is not dependent on any supplier. Its raw materials generally are readily
available from numerous suppliers.
Patents and Trademarks
- ----------------------
The Company has obtained a number of patents and has a number of
trademarks which are used to identify its product lines. No patent or trademark
is considered to be material to the Company's overall operations.
The Company also pays royalties to third parties under arrangements
permitting the Company to manufacture various items in its product lines.
Principal Customers
- -------------------
The Company is not dependent upon any single customer. However, North
Supply Company, a national distributor of telephone products, accounted for
approximately 16% of the Company's net sales for each of the two years ended
June 30, 1996. The Company believes that, should it for any reason lose this
distributor, the Company would not be adversely impacted since these sales would
be absorbed by other distributors.
Research and Development
- ------------------------
The Company is regularly engaged in the design of new products and
improvement of existing products for all of its product lines. The amount
specifically allocated to research and development activities in fiscal 1996 and
1995, principally salaries, was $284,000 in both years. All research and
development is Company-sponsored, except for products designed for the Company
by unaffiliated third parties compensated on a royalty basis.
The Company intends to continue its policy of reviewing potential
acquisitions of new product lines, additional products for its existing product
lines and the enhancement of its
-4-
production and distribution capabilities. Such acquisitions could lead to the
issuance of notes, use of the general working capital of the Company and/or
issuance of shares of the Company's capital stock.
Compliance with Environmental and Other Governmental Laws and Regulations
- -------------------------------------------------------------------------
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.
Employees
- ---------
As at August 31, 1996, the Company had in its employ 30 persons on a
full-time basis. Of these, 18 were engaged in production, 4 in engineering, 4 in
sales and 4 in administration.
Foreign and Government Sales
- ----------------------------
Export sales were approximately $283,000 and $418,000 in fiscal 1996
and 1995, respectively. Such export sales were made principally to Europe,
Canada and South America. Most export sales are made primarily through
distributors and agents. Foreign sales are affected by the strength of the
United States dollar. 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.
ITEM 2. PROPERTIES.
- ------- -----------
The Company's manufacturing operations are conducted in approximately
21,500 square feet of space in Milpitas, California (which includes warehouse
and administrative facilities and which, since September 1, 1996, has also
housed the Company's executive offices ) under a lease expiring on March 31,
1999. The Company believes its facilities, including machinery and equipment,
are suitable and adequate for its present operations. The Company does not
anticipate unusual capital expenditures due to aging, repair or replacement of
machinery and equipment.
ITEM 3. LEGAL PROCEEDINGS.
- ------- ------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ---------------------------------------------------------------
Not applicable.
-5-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
- ------- EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------
The Company's Common Stock is traded in the over-the-counter market
and is quoted on the Nasdaq Stock Market-Small Cap Market under the symbol MTRO.
The following table sets forth the high and low bid prices for the Company's
Common Stock for each quarterly period during fiscal 1996 and fiscal 1995, as
reported by Nasdaq. The quotations are without retail markups, markdowns or
commissions and may not represent actual transactions.
HIGH LOW
---- ---
Fiscal 1996
-----------
First Quarter 1 3/8 13/16
Second Quarter 1 3/8 7/8
Third Quarter 1 3/16 3/4
Fourth Quarter 1 1/4 15/16
Fiscal 1995
-----------
First Quarter 1 3/4
Second Quarter 1 11/16
Third Quarter 1 1/8 7/8
Fourth Quarter 1 1/8 7/8
No dividends have been paid on the Company's Common Stock during
either of the last two fiscal years.
As of June 30, 1996 there were approximately 1,075 holders of record
of the Company's Common Stock.
-6-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto contained elsewhere in this
report.
Financial Condition
- -------------------
During the year ended June 30, 1996, cash increased by $114,767. Of
the cash generated by operating activities ($166,855), $124,472 was derived from
net income and $72,158 was derived from non-cash expenses for depreciation and
amortization. Additional cash was provided by a reduction in inventories
($85,183). A portion of such cash was used to support higher receivables
($107,822). In addition, cash of $52,088 was used to purchase capital assets.
The Company has no commitments for capital expenditures, although it intends to
continue to purchase capital assets in the ordinary course of operations. The
Company believes that the cash which it expects to generate from operations will
be sufficient to meet operational needs for fiscal 1997.
Results of Operations
- ---------------------
Net sales in fiscal 1996 approximated net sales in fiscal 1995.
Reference is made to the table on page 3 of this report for information
concerning sales by product lines during the three years ended June 30, 1996.
Sales of telephone test equipment decreased by $208,379 (5.8%) in fiscal 1996.
This decrease was due to a reduction in sales of older outside plant test sets
(8.5%) and transmission test equipment (39.2%) which are primarily sold to
telephone operating companies. These decreases were offset by increases in sales
of installer's test sets (13.7%) which have a wider market and include sales of
a recently approved hand held test set to a Regional Bell Operating Company.
Sales of customer premise equipment increased by $318,902 (111.3%) principally
due to sales of CSU/DSU products to a large interexchange telephone carrier.
Sales of miscellaneous products and services decreased by $112,716 (32.4%) due
to the completion in fiscal 1995 of an engineering contract with a foreign firm.
Prices charged by the Company for its products in fiscal 1996 remained constant
although some spare parts did have price adjustments for inflation.
The Company's gross profit margin, expressed as a percentage of
sales, decreased to 37.6% in fiscal 1996 from 38.6% in fiscal 1995. This
decrease is attributable to higher material costs which, due to competitive
pressures, were not passed on to the Company's customers in the form of higher
prices. Increases in material costs were partially offset by decreases in direct
labor (6.1%) and manufacturing overhead (6.9%).
Selling, general and administrative expenses decreased by $24,847
(2.1%) in fiscal 1996 from fiscal 1995, primarily caused by a reduction in sales
expenses (6.2%) due to the renegotiation of a royalty agreement which reduced
royalties. Administrative expenses increased by $3,246 (less than 1%) as
increases in professional fees and payroll were offset by a reduction in the
provision for bad debts, due to collection experience, and hospitalization
insurance costs.
-7-
Research and development expenses remained at approximately the same
level as in fiscal 1995.
Royalty, interest and other income increased by $3,582 (48.3%) mainly
due to the sale of some fully depreciated assets.
The provision for income taxes in fiscal 1996 was $44,000, or
approximately 26.1% of pre-tax profits, compared to $69,000, or 38.3% of pre-tax
profits in fiscal 1995. The lower provision for income taxes was due to the
recognition of deferred tax benefits in fiscal 1996.
ITEM 7. FINANCIAL STATEMENTS.
- ------- ---------------------
The following financial statements of the Company are contained on
the pages indicated:.
Page
Report of Independent Certified Public Accountants 9
Financial Statements:
Balance Sheets - June 30, 1996 and 1995 10
Statements of Income - years ended 12
June 30, 1996 and 1995
Statement of Changes in Stockholders' Equity - 13
years ended June 30, 1996 and 1995
Statements of Cash Flows - years ended 14
June 30, 1996 and 1995
Notes to Financial Statements 15
-8-
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Metro Tel Corp.
We have audited the accompanying balance sheets of Metro Tel Corp. as of June
30, 1996 and 1995, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial position of Metro Tel Corp. as of June 30,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
August 9, 1996
-9-
Metro Tel Corp.
BALANCE SHEETS
June 30,
ASSETS 1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 411,924 $ 297,157
Trade receivables, net of
allowance for doubtful
accounts of $10,000 in 1996
and $20,000 in 1995 716,103 598,281
Inventories 1,413,379 1,498,562
Deferred income taxes 31,000 --
Prepaid expenses and other 14,254 16,141
---------- ----------
Total current assets 2,586,660 2,410,141
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 470,433 450,498
Furniture and fixtures 88,414 88,564
Leasehold improvements 8,765 8,765
---------- ----------
567,612 547,827
Less accumulated depreciation and
amortization 477,054 478,708
---------- ----------
90,558 69,119
OTHER ASSETS
Goodwill, net of accumulated
amortization of $369,438 in 1996
and $339,621 in 1995 823,262 853,079
Other, net 21,562 29,692
---------- ----------
844,824 882,771
---------- ----------
$3,522,042 $3,362,031
========== ==========
The accompanying notes are an integral part of these statements.
-10-
Metro Tel Corp.
BALANCE SHEETS
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable $ 209,968 $ 196,378
Accrued liabilities 174,204 154,156
Income taxes payable 18,866 30,965
----------- -----------
Total current liabilities 403,038 381,499
DEFERRED INCOME TAXES 14,000 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value,
200,000 shares authorized, none
issued or outstanding -- --
Common stock, $.025 par value,
6,000,000 shares authorized,
2,030,296 shares issued,
2,004,046 shares outstanding 50,757 50,757
Additional paid-in capital 2,107,173 2,107,173
Retained earnings 1,015,824 891,352
----------- -----------
3,173,754 3,049,282
Less 26,250 shares of treasury
stock - at cost (68,750) (68,750)
----------- -----------
3,105,004 2,980,532
----------- -----------
$ 3,522,042 $ 3,362,031
=========== ===========
The accompanying notes are an integral part of these statements.
-11-
Metro Tel Corp.
STATEMENTS OF INCOME
Year ended June 30,
1996 1995
---- ----
Net sales $ 4,228,556 $ 4,228,722
Cost of goods sold 2,638,168 2,597,385
------------ ------------
Gross profit 1,590,388 1,631,337
------------ ------------
Selling, general and administrative expenses 1,149,089 1,173,936
Research and development 283,823 284,008
Interest expense -- 754
Royalty, interest and other income (10,996) (7,414)
------------ ------------
1,421,916 1,451,284
------------ ------------
Earnings before provision for income
taxes 168,472 180,053
Provision for income taxes 44,000 69,000
------------ ------------
NET EARNINGS $ 124,472 $ 111,053
============ ============
Earnings per common share $ .06 $ .06
======== ========
Weighted average number of common shares
outstanding 2,004,046 2,004,046
============ ============
The accompanying notes are an integral part of these statements.
-12-
Metro Tel Corp.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1996 and 1995
Common stock
$.025 par value Additional
------------------ paid-in Retained Treasury
Shares Amount capital earnings stock Total
------ -------- ---------- ----------- -------- -------
Balance at June 30, 1994 2,030,296 $ 50,757 $2,107,173 $ 780,299 $(68,750) $2,869,479
Net earnings 111,053 111,053
--------- -------- ---------- ----------- -------- ----------
Balance at June 30, 1995 2,030,296 50,757 2,107,173 891,352 (68,750) 2,980,532
Net earnings 124,472 124,472
--------- -------- ---------- ----------- -------- ----------
Balance at June 30, 1996 2,030,296 $50,757 $2,107,173 $ 1,015,824 $(68,750) $3,105,004
========= ======= ========== =========== ======== ==========
The accompanying notes are an integral part of this statement.
-13-
Metro Tel Corp.
STATEMENTS OF CASH FLOWS
Year ended June 30,
1996 1995
---- ----
Cash flows from operating activities
Net earnings $ 124,472 $ 111,053
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 72,158 75,938
Deferred income taxes (17,000) --
Gain on disposition of fixed assets (3,562) --
Allowance for doubtful accounts (10,000) --
(Increase) decrease in operating assets
Trade receivables (107,822) (19,418)
Inventories 85,183 16,188
Prepaid expenses and other 1,887 4,492
Increase (decrease) in operating liabilities
Accounts payable 13,590 (17,961)
Accrued liabilities 20,048 (43,447)
Income taxes payable (12,099) 30,965
---------- ----------
Net cash provided by operating activities 166,855 157,810
---------- ----------
Cash flows from investing activities
Capital expenditures (52,088) (16,306)
---------- ----------
Net cash used in investing activities (52,088) (16,306)
---------- ----------
Cash flows from financing activities
Principal payments of debt -- (25,000)
---------- ----------
Net cash used in financing activities -- (25,000)
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 114,767 116,504
Cash and cash equivalents at beginning of year 297,157 180,653
---------- ----------
Cash and cash equivalents at end of year $ 411,924 $ 297,157
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ -- $ 754
Income taxes 77,486 35,489
The accompanying notes are an integral part of these statements.
-14-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metro Tel Corp. (the "Company") is a Delaware corporation engaged principally in
the manufacture and sale of telephone test equipment and customer premise
equipment, as well as related accessories. The principal market for the
Company's products is the United States. A summary of the significant accounting
policies consistently applied in the preparation of the accompanying financial
statements follows:
1. Revenue Recognition
Sales are recorded as products are shipped.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is principally
determined by the weighted average method, which approximates the first-in,
first-out ("FIFO") method. Market value is determined on the basis of
replacement cost or net realizable value.
3. Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated useful lives (generally 5 to 10 years), on a straight-line
basis. Depreciation and amortization of property and equipment was $34,140
and $37,990 in fiscal 1996 and 1995, respectively.
4. Goodwill
Goodwill, representing cost in excess of the book value of the assets
acquired, is being amortized on a straight-line basis over a period of 40
years. On an ongoing basis, management reviews the valuation and
amortization of goodwill to determine possible impairment by comparing the
carrying value to the undiscounted future cash flows of the related assets.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," that established accounting standards for the impairment of long-lived
assets, certain intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to
be disposed of.
-15-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE A (continued)
SFAS 121 is required to be adopted for fiscal years beginning after
December 15, 1995. Consistent with SFAS 121, it is the Company's policy to
periodically review and evaluate whether there has been a permanent
impairment in the value of intangibles and adjust the carrying value
accordingly. Factors considered in the valuation include current operating
results, trends and anticipated undiscounted future cash flows.
Accordingly, the adoption of SFAS 121 is not expected to have a significant
effect on the financial statements of the Company.
5. Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards and tax credit carryforwards for which income tax benefits
are expected to be realized in future years. A valuation allowance would be
established to reduce deferred tax assets if it is more likely than not
that all, or some portion, of such deferred tax assets will not be
realized. The effect on deferred taxes of a change in tax rates is
recognized in the statements of income in the period that includes the
enactment date.
6. Earnings Per Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding during the year. Stock options have not
been included in the earnings per common share calculations since their
inclusion would not be materially dilutive.
7. Cash Equivalents
The Company considers certificates of deposit and time deposits with
original maturities of three months or less to be cash equivalents for
purposes of the statements of cash flows.
8. Principal Customers
The Company sells its products principally to companies in the
telecommunications industry and to distributors, with its credit risk being
dependent on the economic conditions of the industry and generally
prevailing economic conditions. The Company performs ongoing credit
evaluations of its customers and does not generally require collateral.
Approximately 31% of the Company's trade receivables were concentrated with
three customers at June 30, 1996, with sales to two distributors
representing approximately 28% of net sales during fiscal 1996. Approxi-
-16-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE A (continued)
mately 49% of the Company's trade receivables were concentrated with five
customers at June 30, 1995, with sales to a single distributor representing
approximately 16% of net sales during fiscal 1995.
9. Stock-Based Compensation
Adoption of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," is required for fiscal
years beginning after December 15, 1995 and allows for a choice of the
method of accounting used for stock-based compensation. Entities may elect
the "intrinsic value" method based on APB No. 25, "Accounting for Stock
Issued to Employees" or the new "fair value" method contained in SFAS 123.
The Company intends to implement SFAS 123 in fiscal 1997 by continuing to
account for stock-based compensation under the guidelines of APB No. 25. As
required by SFAS 123, the pro forma effects on net income and income per
share will be determined and disclosed in the notes to the financial
statements, as if the fair value based method had been applied.
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required 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
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE B - INVENTORIES
The components of inventories are summarized as follows:
June 30,
---------------------------
1996 1995
-------- --------
Raw materials $ 644,520 $ 803,207
Work-in-process 313,273 160,576
Finished goods 455,586 534,779
----------- -----------
$ 1,413,379 $ 1,498,562
=========== ===========
-17-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE C - STOCK OPTIONS
The Company has granted stock options to key employees and nonemployee
directors pursuant to separate stock option plans. Outstanding options are
generally exercisable for a period of five years (ten years for directors)
from the date of the grant at a price not less than the market value on the
date of the grant.
The following is a summary of activity with respect to stock options under
the plans:
Number Option price
of shares per share
--------- ----------
Outstanding at June 30, 1994 222,000 $ .81 to $1.31
---------
Granted 55,000 1.00
Expired (31,000) .81 to 1.31
---------
Outstanding at June 30, 1995 246,000 .81 to 1.31
---------
Granted --
Expired (55,000) .94 to 1.31
---------
Outstanding at June 30, 1996 191,000 .81 to 1.31
---------
At June 30, 1996, the Company had reserved 291,500 shares under its stock
option plans. Options for 169,750 shares are exercisable at June 30, 1996
pursuant to these plans.
In each of June 1991 and May 1993, the Company granted options to purchase
30,000 shares of its common stock to nonemployee directors at an exercise
price of $1.19 and $1.00 per share, respectively, the market values on the
dates of grant. These options were not granted pursuant to the Company's
option plans; 40,000 options are exercisable for a ten-year period and
20,000 options expired in May 1996.
-18-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE D - INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
Year ended June 30,
----------------------
1996 1995
------ ------
Current
Federal $ 53,000 $ 55,000
State 8,000 14,000
Deferred (17,000) --
-------- --------
$ 44,000 $ 69,000
======== ========
The tax effects of temporary differences which give rise to deferred tax
assets (liabilities) are summarized as follows:
June 30,
----------------------
1996 1995
------ ------
Deferred tax assets (liabilities)
Inventories $ 20,000 $ 25,000
Vacation accrual 7,000 9,000
Trade receivables 4,000 8,000
Depreciation (14,000) (11,000)
-------- --------
17,000 31,000
Valuation allowance -- (31,000)
-------- --------
Net deferred tax asset $ 17,000 $ --
-------- --------
The following is a reconciliation of the provision for income taxes to the
Federal statutory income tax rate:
-19-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE D (continued)
Year ended June 30,
----------------------
1996 1995
------ ------
Federal statutory rate 34.0% 34.0%
State taxes, net of Federal benefit 4.7 6.6
Amortization of goodwill 6.0 5.6
Effect of graduated Federal tax rates (4.9) (3.6)
Change in deferred taxes/valuation
allowance (10.1) --
Other, net (3.6) (4.3)
---- ----
26.1% 38.3%
---- ----
NOTE E - ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
June 30,
----------------------
1996 1995
------ ------
Payroll and employee benefits $ 75,017 $ 91,152
Profit-sharing contributions 50,709 51,231
Accrued professional fees 35,000 9,466
Other 13,478 2,307
--------- ---------
$ 174,204 $ 154,156
========= =========
NOTE F - EMPLOYEE BENEFIT PLANS
The Company maintains a profit-sharing plan which covers substantially all
employees. Annual contributions, which are determined at the discretion of
the Board of Directors, were approximately $51,000 in both fiscal 1996 and
1995.
The Company also maintains a 401(k) retirement plan which covers
substantially all employees and provides for voluntary employee
contributions with employer matching contributions up to 2% of the
employee's compensation. The Company's matching contributions for this
401(k) retirement plan were $19,000 and $22,000 for fiscal 1996 and 1995,
respectively.
-20-
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996 and 1995
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company occupies a manufacturing and warehouse facility in California
and an office facility in New York pursuant to noncancellable operating
leases expiring in March 1999 and February 1997, respectively. These leases
do not contain renewal options. The approximate minimum rental commitments
under these noncancellable operating leases, at June 30, 1996, are
summarized as follows:
Amount
------
June 30,
1997 $ 146,000
1998 116,000
1999 87,000
----------
$ 349,000
----------
Rent expense charged to operations was $167,000 and $166,000 for fiscal
1996 and 1995, respectively.
2. Employment Agreement
The Company is obligated under an employment agreement with an officer to
pay $173,000 during each of the five fiscal years ending June 30, 2001.
3. Royalty Agreement
The Company is presently obligated pursuant to a royalty agreement to pay
the greater of 10% of sales of certain products or $75,000 per year
($100,000 in fiscal 1995). Payments were $75,000 and $100,000 for fiscal
1996 and 1995, respectively.
NOTE H - EXPORT SALES
Export sales were approximately $283,000 and $418,000 in fiscal 1996 and
1995, respectively.
-21-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------- ON ACCOUNTING AND FINANCIAL DISCLOSURE.
---------------------------------------
Not applicable.
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:
Venerando J. Indelicato, 63, has been President and Treasurer of the
Company for more than the past five years. Mr. Indelicato has been a director of
the Company since 1966.
Richard A. Wildman, 42, has been Executive Vice President of the
Company since September 1996. For more than five years prior to joining the
Company, Mr. Wildman served in various sales and marketing capacities with AT&T
Corp., most recently directing its western phone store operations.
Lloyd Frank, 71, has been a member of the law firm of Parker Chapin
Flattau & Klimpl for more than the past five years. 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.
Michael Michaelson, 73, has been an independent publishing and
marketing consultant for more than the past five years. Mr. Michaelson has been
a director of the Company since 1978.
Michael Epstein, 58, has been an independent investor since December
1993. For more than five years prior thereto Mr. Epstein was an investment
banker with the investment banking firm of Allen & Company Incorporated.
There are no family relationships among any of the directors and
executive officers of the Company. All directors serve until the next annual
meeting of stockholders (scheduled to be held on or about November 26, 1996) 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 make a
significant contribution to the Company:
-22-
Raymond Ma, 48, has been Vice President-Engineering for more than the
past five years.
-23-
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 1996 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 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 1996 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 1996 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
3(a)(1) Copy of Certificate of Incorporation of the Company, as filed
with the Secretary of State of the State of Delaware on June 30,
1963. (Exhibit 1.1 to the Company's Registration Statement on
Form 10, File No. 0-9040).
3(a)(2) Copy of 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. (Exhibit 1.2 to
the Company's Registration Statement on Form 10, File No. 0-
9040).
3(a)(3) Copy of 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 (Exhibit
3(a)(3) to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995, File No. 0-9040).
3(a)(4) Copy of 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
-24-
5, 1986 (Exhibit 3(a)(4) to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1995, File No. 0-9040).
3(a)(5) Copy of 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 (Exhibit 3(a)(5) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1995, File No. 0-9040).
*3(b)(1) Copy of By-Laws of the Company.
10(a)(1) 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(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(c)(1)+ The Company's 1991 Stock Option Plan.
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, 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,
-25-
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 herewith. 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
-------------------
No Reports on Form 8-K were filed by the Company during the last
fiscal quarter of the Company's fiscal year ended June 30, 1996.
-26-
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 27, 1996
By:/s/ Venerando J. Indelicato
---------------------------
Venerando J. Indelicato,
President
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.
Signature Capacity Date
--------- -------- ----
/s/ Venerando J. Indelicato President, Treasurer September 27, 1996
- --------------------------- (Principal Executive,
Venerando J. Indelicato Financial and Accounting
Officer) and Director
/s/ Michael Epstein Director September 27, 1996
- ---------------------------
Michael Epstein
/s/ Lloyd Frank Director September 27, 1996
- ---------------------------
Lloyd Frank
/s/ Michael Michaelson Director September 27, 1996
- ---------------------------
Michael Michaelson
-27-
EXHIBIT INDEX
Exhibit
Number Description
3(a)(1) Copy of Certificate of Incorporation of the Company, as filed
with the Secretary of State of the State of Delaware on June
30, 1963. (Exhibit 1.1 to the Company's Registration Statement
on Form 10, File No. 0-9040).
3(a)(2) Copy of 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. (Exhibit 1.2
to the Company's Registration Statement on Form 10, File No.
0-9040).
3(a)(3) Copy of 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. (Exhibit
3(a)(3) to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995, File No. 0-9040).
3(a)(4) Copy of 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. (Exhibit
3(a)(4) to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995, File No. 0-9040).
3(a)(5) Copy of Certificate of Change of Location of Registered Office
and Agent, as filed with the Secretary of State of the State
of Delaware on December 31, 1986. (Exhibit 3(a)(5) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1995, File No. 0-9040).
*3(b)(1) Copy of By-Laws of the Company.
-28-
10(a)(1) 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(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(c)(1)+ The Company's 1991 Stock Option Plan.
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, 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).
-29-
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 Financials Data Schedule.
-30-