EXHIBIT 99.1
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Steiner-Atlantic Corp.
Miami, Florida
We have audited the accompanying balance sheet of Steiner-Atlantic Corp. as of
December 31, 1997 and the related statements of income, shareholders' equity and
cash flows for each of the two years in the period 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 Steiner-Atlantic Corp. at
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
/S/ BDO SEIDMAN, LLP
Miami, Florida BDO Seidman, LLP
April 1, 1998, except for Note 1
which is as of July 1, 1998
Steiner-Atlantic Corp.
Balance Sheets
December 31, June 30,
1997 1998
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 632,331 $ 828,390
Accounts receivable (Note 7) 1,214,523 1,021,213
Current portion of lease receivables (Notes 2 and 7) 193,562 161,007
Inventories 3,108,303 2,767,624
Other current assets (Note 6) 116,653 67,238
- ---------------------------------------------------------------------------------------------------------------
Total current assets 5,265,372 4,845,472
LEASE RECEIVABLES - due after one year (Notes 2 and 7) 214,177 148,651
PROPERTY AND EQUIPMENT, at cost - net of accumulated
depreciation and amortization (Note 3) 147,039 146,461
- ---------------------------------------------------------------------------------------------------------------
$ 5,626,588 $ 5,140,584
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 5) $ 500,000 $ 1,000,000
Accounts payable and accrued expenses (Note 6) 869,035 1,391,222
Customer deposits 304,278 389,371
Current portion of term loan (Note 5) 200,000 200,000
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,873,313 2,980,593
TERM LOAN, less current portion (Note 5) 316,613 216,613
- ------------------------------------------------------------------------------------------------------------
Total liabilities 2,189,926 3,197,206
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 6, 8 and 9)
- ------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $.50 par value:
Authorized shares - 600,000; issued and
outstanding 339,500 shares 169,750 169,750
Retained earnings 1,448,950 1,448,950
Undistributed shareholders' earnings 1,817,962 324,678
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,436,662 1,943,378
- ------------------------------------------------------------------------------------------------------------
$ 5,626,588 $ 5,140,584
============================================================================================================
See accompanying summary of significant accounting policies and notes to
financial statements.
2
Steiner-Atlantic Corp.
Statements of Income
Year ended December 31, Six months ended June 30,
------------------------------ -----------------------------
1996 1997 1997 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES:
NET SALES $ 13,857,817 $ 14,093,632 $ 6,511,446 $ 7,747,321
COMMISSIONS AND OTHER INCOME 157,900 155,809 72,714 87,388
- -------------------------------------------------------------------------------------------------------------------------------
Total 14,015,717 14,249,441 6,584,160 7,834,709
- -------------------------------------------------------------------------------------------------------------------------------
COST OF SALES 9,953,041 10,344,113 4,628,985 5,856,339
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (NOTE 6) 3,398,345 3,474,421 1,595,932 1,698,058
- -------------------------------------------------------------------------------------------------------------------------------
Total 13,351,386 13,818,534 6,224,917 7,554,397
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 664,331 430,907 359,243 280,312
- -------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 138,426 100,158 55,591 40,390
Management fee income (Note 6) 145,000 40,000 - 150,000
Interest expense (83,543) (60,940) (35,740) (26,509)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 199,883 79,218 19,851 163,881
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 864,214 $ 510,125 $ 379,094 444,193
===============================================================================================================================
Net income per share $ 2.55 $ 1.50 $ 1.12 $ 1.31
Weighted average number of shares of
common stock outstanding 339,500 339,500 339,500 339,500
PRO FORMA AMOUNTS (UNAUDITED):
Net income $ 864,214 $ 510,125 $ 379,094 444,193
Provision for income taxes (Note 4) 329,935 195,555 144,722 170,939
- -------------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME (UNAUDITED) $ 534,279 $ 314,570 $ 234,372 $ 273,254
===============================================================================================================================
Pro forma net income per share (unaudited) $ 1.57 $ .93 $ .69 $ .80
Weighted average number of shares of common stock
outstanding 339,500 339,500 339,500 339,500
===============================================================================================================================
See accompanying summary of significant accounting policies and notes to
financial statements.
3
Steiner-Atlantic Corp.
Statements of Shareholders' Equity
For the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1998
Undistributed Total
Common Retained Shareholders' Stockholders'
Stock Earnings Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 169,750 $ 1,448,950 $ 1,813,623 $ 3,432,323
Distributions - - (770,000) (770,000)
Net income - - 864,214 864,214
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 169,750 1,448,950 1,907,837 3,526,537
Distributions - - (600,000) (600,000)
Net income - - 510,125 510,125
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 169,750 1,448,950 1,817,962 3,436,662
Distributions - - (1,937,477) (1,937,477)
Net income - - 444,193 444,193
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 (unaudited) $ 169,750 $ 1,448,950 $ 324,678 $ 1,943,378
======================================================================================================================
See accompanying summary of significant accounting policies and notes to
financial statements.
4
Steiner-Atlantic Corp.
Statements of Cash Flows
Years ended December 31, Six months ended June 30,
1996 1997 1997 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 864,214 $ 510,125 $ 379,094 $ 444,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 19,414 21,799 - 39,948
Depreciation and amortization 40,064 34,643 14,622 15,621
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables 331,387 (373,356) (91,154) 251,443
Inventories (185,972) 73,249 69,903 340,679
Other current assets 32,998 (14,845) (77,328) 49,415
Other assets 134,720 - (3,160) -
Increase (decrease) in:
Accounts payable and accrued expenses (89,415) 70,597 131,436 347,187
Customer deposits (35,138) 124,406 243,442 85,093
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 1,112,272 446,618 666,855 1,573,579
- -------------------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES:
Loan to affiliate - (50,000) - -
Capital expenditures (23,850) (30,406) - (15,043)
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (23,850) (80,406) - (15,043)
- -------------------------------------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit (net) (300,000) 500,000 - 500,000
Payments on term loan (183,334) (216,720) (116,666) (100,000)
Cash distributions to shareholders (770,000) (600,000) (200,000) (1,937,477)
Borrowings from shareholder 250,000 - - -
Repayment of loan from shareholder (250,000) - - -
Borrowings from related company - - - 175,000
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for financing activities (1,253,334) (316,720) (316,666) (1,362,477)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (164,912) 49,492 350,189 196,059
Cash and cash equivalents at beginning of period 747,751 582,839 582,839 632,331
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 582,839 $ 632,331 $ 933,028 $ 828,390
===============================================================================================================================
Supplemental Information:
Cash paid for:
Interest $ 83,543 $ 60,940 $ 35,740 $ 26,509
===============================================================================================================================
See accompanying summary of significant accounting policies and notes to
financial statements.
5
Steiner-Atlantic Corp.
Summary of Significant Accounting Policies
Unaudited with respect to the six months ended June 30, 1997 and 1998
NATURE OF BUSINESS Steiner-Atlantic Corp. ("Steiner") sells
commercial and industrial laundry and dry
cleaning equipment, boilers and replacement
parts.
Steiner primarily sells to customers located
in the United States, the Caribbean and
Latin America.
INVENTORIES Equipment inventories are valued at the
lower of cost (determined on the specific
identification basis) or market. Replacement
part inventories are valued at the lower of
cost or market determined on the first-in
first-out method.
PROPERTY, EQUIPMENT Property and equipment are stated at cost.
AND DEPRECIATION Depreciation and amortization are calculated
on the accelerated or straight-line methods
for financial reporting purposes and the
accelerated method for income tax purposes
over lives of five to seven years for
furniture and equipment and the life of the
lease for leasehold improvements.
INCOME TAXES Steiner has elected to be taxed as an S
Corporation under applicable provisions of
the Internal Revenue Code. Under such
election, shareholders include Steiner's
income in their own federal income tax
returns. Accordingly, Steiner is not subject
to income taxes.
The pro forma provisions for income taxes
and net income assume that Steiner was
subject to income tax.
For the purpose of the pro forma provision
for income taxes, Steiner has adopted the
provisions of Statement of Financial
Accounting Standards (SFAS) 109, Accounting
for Income Taxes for all periods presented.
Under the asset and liability method of SFAS
109, deferred taxes are recognized for
differences between financial statement and
income tax bases of assets and liabilities.
STATEMENT OF For purposes of this statement, cash
CASH FLOWS equivalents include all highly liquid
investments with original maturities of
three months or less.
6
Steiner-Atlantic Corp.
Summary of Significant Accounting Policies
Unaudited with respect to the six months ended June 30, 1997 and 1998
ESTIMATES The preparation of financial statements in
conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
EARNINGS Per Share Net income and pro forma net
income per share are based on the weighted
average number of shares of common stock
outstanding during each period.
FAIR VALUE OF The Company's financial instruments consist
FINANCIAL INSTRUMENts principally of cash, accounts receivable,
leases receivables, accounts payable and
accrued expenses. The carrying amounts of
such financial instruments as reflected in
the balance sheet approximate their
estimated fair value as of December 31,
1997. The estimated fair value is not
necessarily indicative of the amounts the
Company could realize in a current market
exchange or of future earnings or cash
flows.
NEW ACCOUNTING In June 1997, the Financial Accounting
PRONOUNCEMENT Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information," which Steiner will
adopt as required for all periods beginning
after December 15, 1997. This statement
requires the disclosure of certain
information about operating segments in the
financial statements. It also requires that
public companies report certain information
about their products and services, the
geographic areas in which they operate and
their major customers.
The new standard is effective for financial
statements for periods beginning after
December 15, 1997 and requires comparative
financial information for earlier years to
be restated. Disclosure is not required for
interim periods during the first year. The
adoption of this new standard is not
expected to have a significant impact on
Steiner's financial statements.
INTERIM FINANCIAL The financial statements for the six months
STATEMENTS ended June 30, 1998 and 1997 are unaudited.
In the opinion of management, such financial
statements include all adjustments
(consisting only of normal recurring
accruals) necessary for a fair presentation
of financial position and the results of
operations. The results of operations for
interim periods are not necessarily
indicative of the results to be expected for
the full year.
7
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
1. GENERAL On July 1, 1998, Metro-Tel Corp.
("Metro-Tel") and Steiner-Atlantic Corp.
("Steiner") entered into a merger agreement,
whereby Metro-Tel will acquire all the
issued and outstanding shares of capital
stock of Steiner in exchange for 4,720,954
shares of Metro-Tel. In addition, Metro-Tel
will issue up to 500,000 shares of its
common stock or grant options for the
purchase of up to 500,000 shares of its
common stock to shareholders and employees
of Steiner.
For financial accounting purposes, this
transaction will be accounted for as a
reverse acquisition of Metro-Tel by Steiner.
2. LEASE RECEIVABLES Lease receivables result from customer
leases of equipment under arrangements which
qualify as sales-type leases. At June 30,
1998, annual future lease payments, net of
deferred interest ($57,164 at June 30,
1998), due under these leases are as
follows:
Year ending June 30,
--------------------------------------------
1999 $ 161,007
2000 68,026
2001 41,659
2002 24,016
2003 12,628
Thereafter 2,322
--------------------------------------------
$ 309,658
============================================
3. PROPERTY AND Major classes of property and equipment
EQUIPMENT consist of the following:
December 31, June 30,
1997 1998
-----------------------------------------------------
Furniture and equipment $ 433,535 $ 448,578
Leasehold improvements 237,682 237,682
-----------------------------------------------------
Total cost 671,217 686,260
Less accumulated depreciation
and amortization 524,178 539,799
-----------------------------------------------------
$ 147,039 $ 146,461
=====================================================
8
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
4. INCOME TAXES The following are the components of pro
(UNAUDITED) forma income tax provision:
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
-------------------------------------------------------------
Current
Federal $ 279,616 $ 189,074 $ 131,487 $ 143,910
State 47,864 32,366 22,508 24,536
-------------------------------------------------------------
327,480 221,440 153,995 168,446
-------------------------------------------------------------
Deferred
Federal 2,096 (22,102 ) (7,918) 2,129
State 359 (3,783 ) (1,355) 364
-------------------------------------------------------------
2,455 (25,885 ) (9,273) 2,493
Total $ 329,935 $ 195,555 $ 144,722 $ 170,939
=============================================================
The pro forma provision for income taxes
represents the estimated income taxes that
would have been reported had Steiner not
been an S Corporation and had been subject
to Federal and state income taxes.
The reconciliation of pro forma income tax
computed at the United States federal
statutory tax rate of 34% to the proforma
provision for income taxes is as follows:
9
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
-------------------------------------------------------------------------
Tax at the United
States statutory rate $ 293,833 $ 173,443 $ 128,892 $ 153,826
State income taxes, net
of federal benefit 31,827 18,865 13,961 16,374
Other 4,275 3,247 1,869 739
-------------------------------------------------------------------------
Total $ 329,935 $ 195,555 $ 144,722 $ 170,939
=========================================================================
If Steiner was subject to income taxes, a
deferred tax liability would be recorded,
through a charge to operations, for the tax
effect of cumulative temporary differences
between financial and tax reporting. Such
deferred tax liability results principally
from temporary differences relating to the
allowance for doubtful accounts and
depreciation and would have amounted to
approximately $20,000 at June 30, 1998 had
Steiner been subject to federal and state
taxes at such date.
5. CREDIT AGREEMENT The credit agreement with a commercial bank
includes a line of credit of $2,250,000 and
a term loan initially of $1,000,000. At June
30, 1998 and December 31, 1997, Steiner had
available lines of credit in the amount of
$1,250,000 and $1,750,000, respectively, and
owed $416,613 and $516,613, respectively,
under the term loan. The term loan is due in
60 monthly payments of $16,667, plus
interest through August 2000. The line of
credit is due on demand and is available for
working capital purposes and the issuance of
import letters of credit and bankers
acceptances. Borrowings under the agreement
bear interest at the prime rate (8.5% at
June 30, 1998 and 8.5% at December 31,
1997), are collateralized by all of
Steiner's assets, and are personally
guaranteed by the shareholders. The
agreement requires maintenance of certain
financial ratios and contains other
restrictive covenants.
At June 30, 1998 and December 31, 1997,
Steiner had outstanding letters of credit
aggregating approximately $0 and $35,000,
respectively.
10
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
6. RELATED PARTY During the years ended December 31, 1996 and
TRANSACTIONS 1997 and the six months ended June 30, 1997
and 1998, Steiner charged management fees of
$145,000, $40,000, $0 and $150,000,
respectively, to a company under common
ownership. At December 31, 1997, $50,000 is
due from such company and is included in
other current assets in the accompanying
balance sheet. During 1998, the related
company made a non-interest bearing advance
of $325,000, payable on demand, to Steiner.
At June 30, 1998, $175,000 is due to such
company and is included in accounts payable
and accrued expenses in the accompanying
balance sheet.
Steiner leases warehouse and office space
from a shareholder under an operating lease
which expires in October 2004. Minimum
future rental commitments under this lease
approximate $90,000 per annum through
October 2004.
7. CONCENTRATIONS OF Steiner places its excess cash in overnight
CREDIT RISK deposits with a large national bank.
Concentration of credit risk with respect to
trade and lease receivables is limited due
to a large customer base. Trade and lease
receivables are generally collateralized
with equipment sold.
8. COMMITMENT Steiner leases additional warehouse space
under operating leases which expire in
December 1999, with an option to renew for
an additional three year period. Minimum
future rental commitments under these leases
approximate $50,000 a year. Rent expense,
including rentals paid to related parties,
aggregated $138,768 and $141,700 for the
years ended December 31, 1996 and 1997 and
$71,650 and $70,850 for six months ended
June 30, 1997 and 1998, respectively.
9. DEFERRED Steiner adopted a participatory deferred
COMPENSATION compensation plan wherein it matches
PLAN employee contributions up to 1% of an
eligible employee's yearly compensation. All
employees are eligible to participate in the
plan after one year of service. Steiner
provided for $7,368 and $10,792 for the
years ended December 31, 1996 and 1997 and
$5,260 and $5,735 for the six months ended
June 30, 1997 and 1998, respectively, in
contributions. The plan is tax exempt under
Section 401(k) of the Internal Revenue Code.
10. EXPORT SALES Net sales includes export sales to
nonaffiliated customers as follows for the
years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 and
1998:
11
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
----------------------------------------------------------------
Caribbean $1,345,301 $ 1,793,076 $ 365,591 $ 1,147,918
Latin America 1,314,838 1,595,797 500,976 1,217,397
Other 381,528 560,639 245,256 65,295
----------------------------------------------------------------
$3,041,667 $ 3,949,512 $1,111,823 $ 2,430,610
================================================================
12