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, 1997
[_] 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: $3,882,818
The aggregate market value as at September 15, 1997 of the Common
Stock of the issuer, its only class of voting stock, held by non-affiliates was
approximately $1,908,000 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, 1997 was 2,054,046.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 1997 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.
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General
- -------
Metro-Tel Corp. (the "Company") was incorporated under the laws of
the State of Delaware on June 30, 1963. Its executive offices are 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 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, the Company has added various product lines to its telephone test
and customer premise product lines.
The Company has engaged the investment banking firm of Slusser
Associates, Inc. as the Company's financial advisor to assist the Company in
evaluating strategic alternatives for enhancing shareholder value, including
acquisitions, mergers or the sale of the Company.
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, 1997:
1997 1996 1995
------------- ------------- -------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(dollars in thousands)
Telephone Test
Equipment $3,602 93% $3,387 80% $3,596 85%
Customer Premise
Equipment 121 3% 606 14% 287 7%
Other Products and
Services 160 4% 236 6% 346 8%
------ ------ ------ ------ ------ ------
$3,883 100% $4,229 100% $4,229 100%
====== ====== ====== ====== ====== ======
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 that has occurred as a result of the
downsizing of the RBOCs, through research and development, the Company has begun
introducing new products aimed at reducing its dependence on the RBOCs and
-2-
is entering into new markets, principally the public utility and data industry,
for its existing and new products.
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 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, remote test systems and fiber optic
test sets.
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 and sales representatives who assist the Company's national
telephone equipment distributors. Sales managers are presently based in Georgia
and California and a sales representative is based in New York. In addition, the
Company maintains in-house sales staffs at its facilities in Milpitas,
California.
-3-
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, 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 19% and 16% of the Company's net sales for the years ended June
30, 1997 and 1996, respectively. 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 1997 and
1996, principally salaries, was $238,000 and $284,000, respectively. All
research and development is Company-sponsored, except for products designed for
the Company by unaffiliated third parties compensated on a royalty basis.
-4-
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 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, 1997, the Company had in its employ 30 persons on a
full-time basis. Of these, 16 were engaged in production, 3 in engineering, 5 in
sales and 6 in administration.
Foreign and Government Sales
- ----------------------------
Export sales were approximately $252,000 and $283,000 in fiscal 1997
and 1996, 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 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 1997 and fiscal 1996, as
reported by Nasdaq. The quotations are without retail markups, markdowns or
commissions and may not represent actual transactions.
HIGH LOW
Fiscal 1997
First Quarter 1 1/4 1
Second Quarter 1 1/4 1
Third Quarter 1 1/4 1 1/16
Fourth Quarter 1 1/8 5/8
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
No dividends have been paid on the Company's Common Stock during
either of the last two fiscal years.
As of September 15, 1997 there were approximately 990 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, 1997, cash increased by $86,691. Of
the cash generated by operating activities ($101,033), $12,121 was derived from
net income and $66,558 was derived from non-cash expenses for depreciation and
amortization. Additional cash from operating activities was provided by a
reduction in receivables ($165,646) which was offset, in large part, by an
increase in inventories ($102,960) to support new products and certain other
changes in operating assets and liabilities. Cash of $60,842 was used to
purchase capital assets, while $46,500 was raised through the issuance of stock
due to the exercise of a stock option. 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 1998.
Results of Operations
- ---------------------
Net sales were $345,738 (8.2%) lower in fiscal 1997 than in fiscal
1996. Fiscal 1996 sales included non-recurring shipments of CSU/DSU data devices
to an interexchange company completed in the last quarter of fiscal 1996.
Reference is made to the table on page 3 of this report for information
concerning sales by product lines during the three year period ended June 30,
1997. Sales of telephone test equipment increased by $214,508 (6.3%) in fiscal
1997, encompassing all test equipment categories, with transmission test
equipment increasing 35.5%, outside plant test sets 3.3% and installer's test
sets 1.1%. These increases were attributable to the introduction of new products
in each category, which more than offset the decline in sales of mature
products. In fiscal 1997, sales of customer premise equipment decreased by
$484,579 (80.0%) due to the completion of the CSU/DSU data devices sales
discussed above. Sales of miscellaneous products and services decreased by
$75,667 (32.1%) principally due to lower foreign sales of headsets and lower
sales of spare parts. Price changes in fiscal 1997 were not material to overall
sales, as prices, except for some adjustments for outside plant equipment,
remained relatively constant.
The Company's gross profit margin, expressed as a percentage of
sales, improved slightly to 37.8% in fiscal 1997 from 37.6% in fiscal 1996, with
improvements in material costs (largely due to a change in the product mix of
sales), manufacturing overhead expenses (largely due to lower indirect labor
costs) offsetting an increase in direct labor costs.
Selling, general and administrative expenses increased in fiscal 1997
by $63,272 (5.5%) and as a percentage of sales to 31.2% in fiscal 1997 from
27.2% in fiscal 1996. These increases were primarily the result of the hiring of
an Executive Vice President whose responsibilities are to reestablish growth in
marketing and sales. In addition, there were increases in advertising expenses
-7-
and royalties and commissions paid by the Company. These increases offset
reductions in administrative expenses, consisting mostly of decreases in rent
and payroll, due to the consolidation of the administrative and sales functions
formerly conducted in New York with those conducted in the Company's Milpitas,
California facility.
Research and development expenses decreased by $45,762 (16.1%) in
fiscal 1997 mainly due to lower salaries and payroll expenses resulting from a
restructuring in engineering staff.
Royalties, interest and other income were $4,742 (43.1%) lower in
fiscal 1997 than in fiscal 1996 when the sale of some fully depreciated assets
produced certain non-recurring other income.
The provision for income taxes in fiscal 1997 was $13,000, or
approximately 51.7% of pre-tax profits, compared to $44,000, or 26.1% of pre-tax
profits in fiscal 1996. The provision in fiscal 1997 was higher than the
statutory 34% rate due to state taxes, non-deductible charges to earnings,
principally goodwill, and other rate adjustments. The provision in fiscal 1996
was lower than the statutory rate due to recognition of deferred tax benefits.
-8-
ITEM 7. FINANCIAL STATEMENTS.
- ------- ---------------------
The following financial statements of the Company are contained on
the pages indicated:
Page
----
Report of Independent Certified Public Accountants 10
Financial Statements:
Balance Sheets - June 30, 1997 and 1996 11
Statements of Income - years ended 13
June 30, 1997 and 1996
Statement of Changes in Stockholders' Equity - 14
years ended June 30, 1997 and 1996
Statements of Cash Flows - years ended 15
June 30, 1997 and 1996
Notes to Financial Statements 16
-9-
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, 1997 and 1996, 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,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
San Jose, California
August 20, 1997
-10-
Metro Tel Corp.
BALANCE SHEETS
June 30,
ASSETS
1997 1996
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 498,615 $ 411,924
Trade receivables, net of allowance for
doubtful accounts of $10,000 in 1997 and 1996 550,457 716,103
Inventories 1,516,339 1,413,379
Deferred income taxes 27,000 31,000
Prepaid expenses and other 43,696 14,254
---------- ----------
Total current assets 2,636,107 2,586,660
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 486,683 470,433
Furniture and fixtures 76,883 88,414
Leasehold improvements 8,765 8,765
---------- ----------
572,331 567,612
Less accumulated depreciation and amortization 457,671 477,054
---------- ----------
114,660 90,558
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$399,255 in 1997 and $369,438 in 1996 793,444 823,262
Other, net 10,465 21,562
---------- ----------
803,909 844,824
---------- ----------
$3,554,676 $3,522,042
========== ==========
The accompanying notes are an integral part of these statements.
-11-
Metro Tel Corp.
BALANCE SHEETS (continued)
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
CURRENT LIABILITIES
Accounts payable $ 212,171 $ 209,968
Accrued liabilities 171,880 174,204
Income taxes payable -- 18,886
----------- -----------
Total current liabilities 384,051 403,038
DEFERRED INCOME TAXES 7,000 14,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.025 par value, 6,000,000 shares
authorized, 2,080,296 shares issued and
2,054,046 shares outstanding in 1997,
2,030,296 shares issued and 2,004,046 outstanding
in 1996 52,007 50,757
Additional paid-in capital 2,152,423 2,107,173
Retained earnings 1,027,945 1,015,824
----------- -----------
3,232,375 3,173,754
Less 26,250 shares of treasury stock - at cost (68,750) (68,750)
----------- -----------
3,163,625 3,105,004
----------- -----------
$ 3,554,676 $ 3,522,042
=========== ===========
The accompanying notes are an integral part of these statements.
-12-
Metro Tel Corp.
STATEMENTS OF INCOME
Year ended June 30,
1997 1996
---- ----
Net sales $ 3,882,818 $ 4,228,556
Cost of goods sold 2,413,529 2,638,168
----------- -----------
Gross profit 1,469,289 1,590,388
Selling, general and administrative expenses 1,212,361 1,149,089
Research and development 238,061 283,823
Interest and other income (6,254) (10,996)
----------- -----------
1,444,168 1,421,916
----------- -----------
Earnings before provision for income taxes 25,121 168,472
Provision for income taxes 13,000 44,000
----------- -----------
NET EARNINGS $ 12,121 $ 124,472
=========== ===========
Earnings per common share $ .01 $ .06
=========== ===========
Weighted average number of common shares outstanding 2,025,711 2,004,046
=========== ===========
The accompanying notes are an integral part of these statements.
-13-
Metro Tel Corp.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997 and 1996
Common Stock
$.025 Par Value Additional
----------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 1, 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
Net earnings -- -- -- 12,121 -- 12,121
Stock option exercised 50,000 1,250 45,250 -- -- 46,500
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 2,080,296 $ 52,007 $2,152,423 $1,027,945 $ (68,750) $3,163,625
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of this statement.
-14-
Metro Tel Corp.
STATEMENTS OF CASH FLOWS
Year ended June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 12,121 $ 124,472
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 66,558 72,158
Deferred income taxes (3,000) (17,000)
Gain on disposition of fixed assets -- (3,562)
Allowance for doubtful accounts -- (10,000)
(Increase) decrease in operating assets:
Trade receivables 165,646 (107,822)
Inventories (102,960) 85,183
Prepaid expenses and other assets (18,345) 1,887
Increase (decrease) in operating liabilities:
Accounts payable 2,203 13,590
Accrued liabilities (2,324) 20,048
Income taxes payable (18,866) (12,099)
--------- ---------
Net cash provided by operating activities 101,033 166,855
Cash flows from investing activities:
Capital expenditures (60,842) (52,088)
Cash flows from financing activities:
Issuance of common stock 46,500 --
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 86,691 114,767
--------- ---------
Cash and cash equivalents at beginning of year 411,924 297,157
--------- ---------
Cash and cash equivalents at end of year $ 498,615 $ 411,924
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 60,127 $ 77,486
The accompanying notes are an integral part of these statements.
-15-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
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 $36,740 and $34,140 in fiscal 1997 and 1996, respectively.
4. Goodwill
Goodwill, representing cost in excess of the book value of net 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.
5. Income Taxes
Deferred income taxes are recognized for temporary differences between
the 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 statement of income in the period that
includes the enactment date.
-16
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Common stock
equivalents are included in the weighted average number of common shares
outstanding when their effect is dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. SFAS No. 128 simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, Earnings Per Share and
is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier adoption is not
permitted. The Company does not expect the adoption of SFAS No. 128 to
have a significant impact to its reported results.
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 40% of the Company's trade receivables were concentrated
with three customers at June 30, 1997, with sales to one distributor
representing approximately 19% of net sales during fiscal 1997.
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.
9. 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.
-17-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE B - INVENTORIES
The components of inventories are summarized as follows:
June 30,
--------------------------
1997 1996
---- ----
Raw materials $ 692,368 $ 644,520
Work-in-process 232,818 313,273
Finished goods 591,153 455,586
---------- ----------
$1,516,339 $1,413,379
========== ==========
NOTE C - STOCK OPTIONS
The Company has in effect a 1991 Stock Option Plan and a 1994 Non-Employee
Director Stock Option Plan which authorize the grant of options to purchase
350,000 shares of the Company's common stock to key management employees of
the Company and members of the Company's Board of Directors, respectively.
The plans provide that option prices will not be less than the fair market
value per share on the date the option is granted. Accordingly, no
compensation cost has been recognized for options granted under the plans.
Had compensation cost for the plans been determined based on the fair value
of the options at the grant dates consistent with the method prescribed in
SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
earnings and earnings per share would have been reduced in fiscal 1997 to
the pro forma amounts indicated below. Pro forma amounts for 1997 and 1996
may not be indicative of pro forma results in future periods because the pro
forma amounts below do not include pro forma compensation cost for options
granted prior to fiscal 1996.
1997 1996
---------- -----------
Net earnings
As reported $ 12,121 $ 124,472
Pro forma $ 2,087 $ 124,472
Per share
As reported $ 0.01 $ 0.06
Pro forma $ 0.00 $ 0.06
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted-average
assumptions used for grants in 1997 (there were no grants in 1996): no
expected dividends; expected volatility of 90%; risk-free interest rate of
5.9%; and expected lives of 4 years.
In addition, in each of June 1991 and May 1993, the Company granted stock
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 fair market values on the dates of grant. These options were not granted
pursuant to the Company's stock option plans. The remaining options to
purchase 40,000 shares are exercisable over a ten-year period.
Options for 20,000 shares expired in May 1996.
-18-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE C - STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options plans, along with
grants to non-employee directors prior to the 1994 Plan, as of June 30, 1997
and 1996, and changes during the years ending on those dates is presented
below.
1997 1996
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
Outstanding at beginning of year 231,000 $0.98 306,000 $ 1.00
Granted 90,000 0.90 -- --
Exercised (50,000) 0.93 -- --
Canceled (46,000) 0.85 (75,000) 1.04
225,000 $0.98 231,000 $ 0.98
------- ----- ------- --------
Weighted average fair value of options
granted during the year $0.65 $--
- -----------------------------------------
The following information applies to options outstanding at June 30, 1997:
Range of exercise prices $0.81-$1.19
Options outstanding 225,000
Weighted average exercise price $0.98
Weighted average remaining contractual life (years) 9
Options exercisable 195,000
Weighted average exercise price $0.98
NOTE D - INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
June 30,
-------------------
1997 1996
---- ----
Current
Federal $ 11,000 $ 53,000
State 5,000 8,000
Deferred (3,000) (17,000)
---------- -----------
$ 13,000 $ 44,000
========== ===========
-19-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE D - INCOME TAXES (CONTINUED)
The tax effects of temporary differences which give rise to deferred tax
assets (liabilities) are summarized as follows:
June 30,
-------------------
1997 1996
---- ----
Deferred tax assets (liabilities)
Inventory capitalization $ 15,500 $ 20,000
Vacation accrual 8,500 7,000
Trade receivables 3,000 4,000
Depreciation (7,000) (14,000)
---------- -----------
20,000 17,000
Valuation allowance - -
---------- ---------
Net deferred tax asset $ 20,000 $ 17,000
========== ===========
The following is a reconciliation of the provision for income taxes to the
Federal statutory income tax rate:
June 30,
-------------------------
1997 1996
---------- ----------
Federal statutory rate 34.0% 34.0%
State taxes, net of Federal benefit 6.5 4.7
Amortization of goodwill 13.2 6.0
Effect of graduated Federal tax rates (11.9) (4.9)
Change in valuation allowance - (10.1)
Other, net 9.9 (3.6)
--------- ----------
51.7% 26.1%
========= ==========
NOTE E - ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
June 30,
-------------------
1997 1996
---- ----
Payroll and employee benefits $ 80,934 $ 75,017
Profit-sharing contributions 49,589 50,709
Accrued professional fees 36,000 35,000
Other 5,357 13,478
---------- -----------
$ 171,880 $ 174,204
========== ===========
-20-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
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 $49,589 in fiscal 1997 and $50,709 in fiscal
1996.
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 contribution for this 401(k)
retirement plan was $19,000 for both fiscal 1997 and 1996.
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases
------
The Company occupies a manufacturing and warehouse facility in California
pursuant to a noncancelable operating lease expiring in March 1999. This
lease does not contain a renewal option. The approximate minimum rental
commitment under this lease, at June 30, 1997, is summarized as follows:
Year ending June 30,
1998 $ 116,000
1999 87,000
----------
$ 203,000
==========
Rent expense charged to operations (including rent under a noncancelable
lease for an office facility in New York which expired in February 1997) was
$147,000 and $167,000 for fiscal 1997 and 1996, respectively.
Employment Agreements
---------------------
The Company is obligated under an employment agreement, expiring June 30,
2001, with an officer to pay $173,000 per annum. The Company is also a party
to an employment arrangement with another executive officer pursuant to
which he received $94,711 in fiscal 1997, is receiving a salary of $150,000
per annum since July 1, 1997 and may receive bonuses in fiscal 1998 if sales
reach certain levels.
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.
Payments were $79,800 and $75,000 for fiscal 1997 and 1996, respectively.
The Company is also obligated pursuant to a second royalty agreement to pay
10% of annual sales of certain other products. Payments were $27,000 and
$13,000 for fiscal 1997 and 1996, respectively.
-21-
METRO TEL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE H - EXPORT SALES
Export sales were approximately $242,000 and $257,000 in fiscal 1997 and
1996, respectively.
-22-
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, 64, 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, 43, 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, 72, 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, 74, 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, 59, 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 5, 1997) 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:
Howard Perera, 45, has served as the Company's Director of
Engineering, engaged in the design and development of new products since joining
the Company in September
-23-
1993. For approximately five years prior to joining the Company, Mr. Perera
served as a product manager for DCM Corp.
Jon D. Robinette, 40, has, since July 1995, served as General Manager
of the Company, responsible for managing and coordinating operations in the
Company's Milpitas, California facility. Prior thereto, Mr. Robinette served as
Operations Manager for the Company 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 1997 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 1997 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 1997 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
-24-
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 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 (Exhibit 3(b)(1) to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1996,
File No. 0-9040).
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(b)(2)+ Letter agreement dated August 29, 1996 between the Company and
Richard A. Wildman.
10(c)(1)+ The Company's 1991 Stock Option Plan (Exhibit 10(c)(1) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1996, 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, 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-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 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, 1997. Following the
close of the fiscal year, the Company filed a Current Report on Form 8-K dated
(Date of earliest event reported) August 4, 1997 reported Item 5 (Other Events)
and Item 7. No financial statements were filed with that Report.
-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 26, 1997
By: 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 26, 1997
- --------------------------- (Principal Executive,
Venerando J. Indelicato Financial and Accounting
Officer) and Director
/s/ MICHAEL EPSTEIN Director September 26, 1997
- ---------------------------
Michael Epstein
/s/ LLOYD FRANK Director September 26, 1997
- ---------------------------
Lloyd Frank
/s/ MICHAEL MICHAELSON Director September 26, 1997
- ---------------------------
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. (Exhibit 3(b)(1) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1996, File No. 0-9040).
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).
-28-
*10(b)(2)+ Letter agreement dated August 29, 1996 between the Company and
Richard A. Wildman.
10(c)(1)+ The Company's 1991 Stock Option Plan. (Exhibit 10(c)(1) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 1996, 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, 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 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.
-29-