SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9040
METRO TEL CORP.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
(State of other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
(Address of principal executive offices)
(305) 754-4551
(Issuer's telephone number)
Not Applicable
(Former address of principal executive offices)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No[ ]
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: Common Stock, $.025 par
value per share - 6,925,000 shares outstanding as of May 12, 1999.
METRO TEL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (1)
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For the nine months For the three months
ended March 31, ended March 31,
1999 (2) 1998 1999(2) 1998
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Sales $13,447,294 $11,342,617 $4,846,630 $3,760,431
Other revenues (3) 390,791 154,469 101,258 32,844
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Total revenues 13,838,085 11,497,086 4,947,888 3,793,275
Cost of goods sold 9,977,613 8,502,667 3,563,432 2,787,539
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Gross profit 3,860,472 2,994,419 1,384,456 1,005,736
Selling, general and
administrative expenses 2,758,449 2,644,537 920,539 828,850
Research and development 105,249 64,343
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2,863,698 2,644,537 984,882 828,850
Operating income 996,774 349,882 399,574 176,886
Other income and expenses
Interest income 48,090 66,505 16,613 21,938
Other expenses (60,418) 914
Interest expense (128,748) (42,537) (44,643) (17,337)
--------- -------- -------- --------
(80,658) (36,450) (28,030) 5,515
Earnings before taxes 916,116 313,432 371,544 182,401
Provision for income taxes 253,017 148,618 --------
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Net earnings $663,099 $313,432 $222,926 $182,401
Basic earnings per share (4) $ .11 $ .07 $ .03 $ .04
Diluted earnings per share (4) $ .10 $ .07 $ .03 $ .04
Weighted average number of
shares outstanding:
Basic (5) 5,917,646 4,720,954 6,875,000 4,720,954
Diluted (5) 6,414,632 4,720,954 7,371,986 4,720,954
=====================================================================================================
PRO FORMA AMOUNTS
Earnings before taxes $ 916,116 $ 371,544
Executive compensation (6) 259,668
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Pro forma earnings before taxes 1,175,784 371,544
Provision for income taxes (7) 470,314 148,818
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Proforma net earnings $ 705,470 $ 222,926
Proforma basic earnings
per share $ .12 $ .03
Proforma diluted earnings
per share $ .11 $ .03
Weighted average number of
shares outstanding:
Basic (5) 5,917,646 6,875,000
Diluted (5) 6,414,632 7,371,986
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METRO TEL CORP
CONSOLIDATED BALANCE SHEETS Unaudited (1)
March 31, 1999(2) June 30, 1998
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ASSETS
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CURRENT ASSETS
Cash and cash equivalents $ 624,554 $ 828,390
Accounts receivable, net 1,647,802 981,432
Inventories 4,206,868 2,911,158
Current portion of lease receivables 144,715 161,007
Prepaid expenses and other 61,964 33,490
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Total current assets 6,685,903 4,915,477
Lease receivables due after one year 104,756 148,651
Deferred income tax 133,000
Property and equipment, at cost-
net of accumulated depreciation
and amortization 190,831 146,461
Other assets 173,555 33,748
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$7,288,045 $5,244,337
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METRO TEL CORP
CONSOLIDATED BALANCE SHEETS Unaudited (1)
LIABILITIES AND SHAREHOLDERS'
EQUITY
March 31, 1999(2) June 30, 1998
----------------- -------------
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 818,320 $1,494,975
Line of credit 1,000,000
Current portion of bank loan 480,000 200,000
Customer deposits 299,870 389,371
Income taxes payable 119,079
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Total current liabilities 1,717,269 3,084,346
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Long term loan less current portion 1,760,000 216,613
Deferred income tax 5,000
SHAREHOLDER'S EQUITY
Common stock, 15,000,000 shares
authorized, 6,901,250 shares issued
and 6,875,000 shares outstanding
as of November 30, 1998 172,531 118,024
Additional paid-in capital 1,992,664 51,726
Retained earnings 1,709,331 1,773,628
Less 26,250 shares of treasury
stock at cost (68,750)
Total shareholder's equity 3,805,776 1,943,378
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$7,288,045 $5,244,337
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METRO TEL CORP.
STATEMENTS OF CASH FLOWS Unaudited (1)
Nine months ended Nine months ended
March 31, March 31,
1999 (2) 1998
----------------- ------------------
Cash flows from operating activities:
Net income $ 663,099 $ 313,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 4,145 83,130
Depreciation and amortization 27,042 23,135
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables (203,569) (13,136)
Inventories 326,434 287,166
Prepaid expenses and other assets (55,106) 64,941
Increase (decrease) in:
Accounts payable and accrued expenses (1,416,136) (217,068)
Customer deposits (89,501) (10,198)
Income taxes payable 119,079
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Cash provided (used) by operating activities (624,513) 531,402
Cash flows form investing activities:
Capital expenditures (60,204) (40,473)
Cash of acquired company 384,888
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Cash flows provided (used) in investing activities 324,684 (40,473)
Cash flows from financing activities:
Payments on line of credit (1,000,000) (500,000)
Payments on term loan (416,613) (150,054)
Borrowings on line of credit 500,000
Borrowings under new term loan 2,400,000
Payments under new term loan (160,000)
Cash distribution to shareholders (727,394) (400,000)
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Cash flows provided (used) by financing activities 95,993 (550,054)
Decrease in cash and cash equivalents (203,836) (59,125)
Cash and cash equivalents at beginning of period 828,390 933,028
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Cash and cash equivalents at end of period $ 624,554 $ 873,903
----------- ----------
Supplemental information:
Cash paid for interest $ 128,748 $ 42,537
Cash paid for income taxes 125,000
Non-cash transactions
Acquisition of net assets 1,541,807
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METRO TEL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) General: The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB related to interim
period financial statements. Accordingly, these financial statements do not
include certain information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management, are
necessary in order to make the financial statements not misleading. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the full year. For further information, refer to the
Company's financial statements and footnotes thereto included in the Company's
Transition Annual Report on Form 10-KSB for the period January 1, 1998 to June
30, 1998.
NOTE (2) Basis of Presentation: On November 1, 1998, Steiner-Atlantic Corp.
("Steiner") was merged (the "Merger") with and into, and became a wholly-owned
subsidiary of, Metro Tel Corp. ("Metro Tel" and collectively with Steiner, the
"Company"). As a result of the Merger, the Company has added Steiner's
operations as a supplier of dry cleaning, industrial laundry equipment and steam
boilers to Metro Tel's telecommunications operations as a manufacturer and
seller of telephone test sets and customer premise equipment.
The Company's Quarterly Report on Form 10-QSB for the nine months ended March
31, 1998, heretofore filed by the Company with the Securities and Exchange
Commission, reflected only the business and financial statements of Metro Tel
Corp. on a stand-alone basis.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse" acquisition of Metro Tel by Steiner utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in this Report covering periods prior to November 1, 1998 reflect only
the results of operations, financial position and cash flows of Steiner on a
stand alone basis. All consolidated financial statements of the Company for
periods commencing November 1, 1998, in addition, include the results of
operations, financial position and cash flows of Metro Tel from and after
November 1, 1998. Accordingly, the results of operations for both reported
periods of 1998 do not reflect the results of telecommunications operations. The
results for the nine month period ended March 31, 1999 includes five months of
telecommunications operations. The results for the three month period ended
March 31, 1999 reflect the operations of both Steiner and Metro Tel.
Steiner's outstanding shares (339,500) at the date of Merger are deemed to have
been recapitalized to 4,720,954 (the number of shares of the Company's Common
Stock issued in respect of Steiner's outstanding Common Stock in the Merger).
The attached financial statements give effect to this recapitalization.
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NOTE (3) Management Fees: Management fees for all periods presented have been
reclassified for comparative purposes.
NOTE (4) Earnings Per Common Share: In 1997, the FASB issued Statement No. 128,
"Earnings Per Share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been presented to
conform to the Statement No. 128 requirements.
NOTE (5) Weighted Average Number of Shares: The difference between the weighted
average number of shares in basic and diluted earnings per share is due to the
outstanding stock options.
NOTE (6) Executive Compensation Adjustment: The adjustment in pro forma amounts
for executive compensation represents executive salaries paid to certain
executives in the periods shown in excess of the salaries to be paid to them
after consummation of the Merger.
NOTE (7) Income Tax Adjustment: Prior to this period, Steiner was a Subchapter S
corporation under the Internal Revenue Code of 1986, as amended, and,
accordingly, its shareholders, rather than it, were subject to income taxation
on Steiner's earnings. The adjustment to the provision for income taxes
represents income taxes had Steiner been taxed under Subchapter C of the Code
for the periods shown.
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MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On November 1, 1998, Steiner-Atlantic Corp. ("Steiner") was merged ( the
"Merger") with and into, and became a wholly owned subsidiary of, Metro Tel
Corp. ("Metro Tel" and collectively with Steiner, the "Company"). As a result of
the Merger, the Company has added Steiner's operations as a supplier of dry
cleaning, industrial laundry equipment and steam boilers to Metro Tel's
telecommunications operations as a manufacturer and seller of telephone test and
customer premise equipment.
The Company's Quarterly Report on Form 10-QSB for the nine months ended March
31, 1998, heretofore filed by the Company with the Securities and Exchange
Commission, reflected only the business and financial statements of Metro Tel
Corp. on a stand-alone basis.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse acquisition" of Metro Tel by Steiner utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in this Report covering periods prior to November 1, 1998 reflect only
the results of operations, financial position and cash flows of Steiner on a
stand-alone basis. All consolidated financial statements of the Company for
periods commencing November 1, 1998, in addition, include the results of
operations, financial position and cash flows of Metro Tel from and after
November 1, 1998. Accordingly, the results of operations for both reported
periods of 1998 do not reflect the results of telecommunications operations. The
results for the nine month period ended March 31, 1999 includes five months of
telecommunications operations. The results for the three month period ended
March 31, 1999 reflect the operations of both Steiner and Metro Tel.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended March 31, 1998, cash decreased by $203,836.
Operating activities used cash of $624,513, principally to reduce accounts
payable and accrued expenses ($1,416,136) and customer deposits ($89,501) and to
support an increase in accounts and lease receivables ($203,569) and an increase
in pre-paid expenses and other assets ($55,106). These uses were partially
offset by $663,099 provided by the Company's net income supplemented by non-cash
expenses of $27,042 for depreciation and amortization and $4,145 for bad debts,
a reduction in inventories ($326,434) and an increase in the liability for
income taxes payable ($119,079). Investing activities provided cash of $324,684
reflecting Metro- Tel's cash position of $384,888 at the time of the Merger,
partially offset by $60,204 used to purchase capital assets. On November 2,
1998, Steiner entered into a Loan and Security Agreement with First Union
National Bank. Under the Loan Agreement, the bank has made a term loan to
Steiner of $2,400,000 and provided Steiner with a revolving credit facility
entitling it to borrow up to $2,500,000 until the earlier of November 2, 1999 or
the date the bank demands repayment of revolving credit loans. The term loan is
payable in monthly installments of $40,000 plus interest, commencing January
1999 with a $960,000 balloon payment in January 2002. The loans, which are
guaranteed by Metro Tel, are secured by pledges of substantially all of the
present and future assets and property, excluding real estate of Metro Tel and
Steiner. A portion of the proceeds of the tem loan were used to repay
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Steiner's existing line of credit of $1,000,000 and the remaining outstanding
balance ($416,613) of Steiner's former term loan, as well as to fund the
remaining Subchapter S distributions ($727,394) payable to the former
shareholders of Steiner. Installment payments of $160,000 have been made for the
nine month period ended March 31, 1999 on the new term loan. The foregoing
resulted in a net $95,993 being provided by financing activities. The Company
believes that its present cash and cash it expects to generate from operations
will be sufficient to meet its operational needs.
YEAR 2000 COMPLIANCE
The Company believes that its internal management information systems, billing,
payroll and other information services are Year 2000 compliant. The Company has
already upgraded its software programs at a cost of less than $2,000 and carried
out certain tests of its accounts receivable and accounts payable files which
are date sensitive and found all systems to operate properly. The Company is not
linked by computer with any of its customers or vendors. Orders are received and
purchase orders are sent by telecopy, telephone, in person or by mail.
None of these methods are date sensitive.
RESULTS OF OPERATIONS
The results for the nine month period ended March 31, 1999 reflect the results
of dry cleaning and laundry equipment and steam boiler operations of Steiner
along with five months of telecommunications operations of Metro Tel. Results
for the three month period then ended reflect the results of both the dry
cleaning and telecommunications operations. Results for periods in fiscal 1998
reflect only the results of Steiner.
Net sales for the nine and three month periods ended March 31, 1999 increased by
$2,104,677 (18.6%) and $1,086,199 (28.9%), respectively, from the comparable
periods of fiscal 1998 due to the increased sales of laundry equipment, steam
boilers and spare parts which offset a reduction in sales of dry cleaning
equipment, as well as the inclusion for the nine and three month periods of
$1,190,535 and $666,883, respectively, of telecommunication equipment sales.
Other revenues increased by $236,322 (153.0%) and $68,414 (208.3%),
respectively, for the nine and three month periods of fiscal 1999 when compared
to the comparable periods of fiscal 1998, mainly due to increased management
fees.
The Company's gross profit margin, expressed as a percentage of sales, increased
to 27.9% for the nine month period of fiscal 1999 from 26.0% for the same period
of fiscal 1998. For the three month period, gross margin increased to 28.0% in
fiscal 1999 from 26.5% in same period of fiscal 1998. These increases are mainly
due to the inclusion of telecommunications operations and the increase in sales
of spare parts, all of which carry a higher margin, and higher management fees.
Selling, general and administrative expenses increased by $113,912 (4.3%) and
$91,689 (11.1%) for the nine and three month periods, respectively, in fiscal
1999 from the comparable periods of fiscal 1998. The increase in both periods
was attributed to the inclusion of the telecommunications operations which
offset a reduction in this category of
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Steiner's expenses caused by a decrease in executive compensation as a result of
the Merger. See pro forma amounts.
Research and development expenses relate solely to the telecommunications
operations included following the Merger on November 1, 1998.
Interest expense increased by $86,211 (202.7%) and $27,306 (157.5%) in the nine
and three month periods of fiscal 1999 over the comparable periods of fiscal
1998 due to the higher level of indebtedness.
Provision for income taxes is reflected only for the five months following the
Merger on November 1, 1998. Prior to this period, Steiner was a Subchapter S
corporation under the Internal Revenue Code of 1986, as amended, and,
accordingly, its shareholders, rather than it, were subject to income taxation
on Steiner's earnings. See proforma amounts.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
No securities were issued by the Company during the quarter covered
by this Report. However, on April 23, 1999, Venerando J. Indelicato, Treasurer
and a director of the Company, exercised a stock option granted under the
Company's 1991 Stock Option Plan. Mr. Indelicato has agreed, in his option
contract, that any shares purchased upon exercise of the option will be acquired
for investment and not with a view to the distribution or resale thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Company believes that the exemption from registration afforded by Section
4(2) of the Securities Act is applicable to the issuance of such shares.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The only Current Report on Form 8-K filed by the Company during the
period covered by this report was a Current Report on Form 8-K dated (date of
earliest event reported) January 4, 1999, reporting under Item 4: Changes in
Registrant's Certifying Accountant, Item 5: Other Events, and Item 7: Financial
Statements, Pro Forma Financial Information and Exhibits. No financial
statements were filed with the Report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
METRO-TEL CORP.
Date: May 14, 1999 By: /s/ Venerando J. Indelicato
-------------------------------------
Venerando J. Indelicato
Treasurer and
Chief Financial Officer
11
EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule