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Article by DailyStocks_admin    (10-07-08 08:59 AM)

Filed with the SEC from Sep 25 to Oct 1:

Sunair Services (SNR)
A shareholder group including Dru A. Schmitt wants Sunair to be sold, with net proceeds distributed to shareholders. The group says that it is considering options, including replacing the board with people who are "not self-interested or not willing to overlook the track record of Richard Rochon, Sunair's chairman, and his associates." The group owns about 5.2 million shares (37% of the total outstanding).

BUSINESS OVERVIEW

Overview
Sunair Services Corporation (“Sunair,” the “Company,” “us,” “we” or “our”) is a Florida corporation organized in 1956. We changed our corporate name from Sunair Electronics, Inc. to Sunair Services Corporation in November of 2005. During fiscal 2007, we operated in two business segments: Lawn and Pest Control Services and Telephone Communications. Our Lawn and Pest Control Services segment provides lawn care and pest control services to both residential and commercial customers. Our Telephone Communications segment installs and maintains telephone and fixed wireless systems. For financial information regarding these segments and the geographical areas of our sales, see Note 17—Segment and Geographic Information to the consolidated financial statements included in Item 8 herein.
On February 8, 2005, we closed a transaction with Coconut Palm Capital Investors II, Ltd. (“Coconut Palm”), which we entered into on November 17, 2004. Coconut Palm purchased from us 5,000,000 Units for an aggregate purchase price of $25 million. Each Unit consisted of (i) one share of our common stock, (ii) one warrant to purchase one share of our common stock at an exercise price of $6.00 per share with a term of three years and (iii) one warrant to purchase one share of our common stock at an exercise price of $7.00 per share with a term of five years. In connection with the investment by Coconut Palm, we formed a new Lawn and Pest Control Services segment for future acquisitions and operations.
Effective upon the closing of the Coconut Palm transaction, we entered into a management services agreement with an affiliate of Coconut Palm, RPC Financial Advisors, LLC (“RPC”), pursuant to which RPC agreed to provide management services for us. Richard C. Rochon and Mario B. Ferrari, both of whom are affiliates of Coconut Palm and each of whom are members of our Board of Directors and principal shareholders of the Company, are also affiliates of RPC. On January 7, 2008, the Company entered into a management services agreement (“Management Services Agreement” or the “Amended Management Services Agreement”) with RPC, which supersedes and replaces the management services agreement (the “Previous Management Services Agreement”) dated February 8, 2005, as amended between the Company and RPC. The Amended Management Services Agreement is for a term of three years, commencing on February 8, 2008 and expiring on February 7, 2011. Pursuant to the Amended Agreement, RPC will provide the Company with services similar to those provided under the prior management services agreement. We will pay RPC a monthly management fee equal to one (1%) of the monthly gross revenues of the Company, which will be payable monthly based on the preceding quarter. RPC will also receive a transaction fee of up to 2% of the Aggregate Consideration received by the Company in a Transaction (as such capitalized terms are defined in the Amended Management Services Agreement). After the initial term of three years, the Amended Management Services Agreement will automatically renew for successive one year terms, unless either RPC or the Company terminates the agreement upon 30 days notice. Please see Note 20-Subsequent Events in our consolidated financial statements included herein in Item 8.
In June 2005 with the acquisition of Middleton Pest Control, Inc., we made a strategic decision to become a leading provider of lawn and pest control services focusing primarily on residential customers. Previously, we had operated through two business segments: High Frequency Radio and Telephone Communications. Since that time we have executed our strategy and shifted our focus to the Lawn and Pest Control Services segment which resulted in a series of acquisitions and divestitures planned to enable us to grow our core business, Lawn Care and Pest Control Services, and shed our legacy businesses (Telephone Communications and High Frequency Radio).
Since June 2005 through September 30, 2007, our acquisitions and divestitures have been as follows:
Acquisitions:
• June 2005 we acquired the issued and outstanding stock of Middleton Pest Control, Inc. (“Middleton”), our platform company, a leading provider of lawn and pest control services in Florida.

• July 2005 we acquired substantially all the assets of Four Seasons Lawn and Pest Control, Inc. (“Four Seasons”).

• December 2005 we acquired substantially all the assets of Spa Creek Services, LLC, D/B/A as Pest Environmental Services, Inc. (“Spa Creek”).

• January 2006 we acquired substantially all the assets of Par Pest Control, Inc., D/B/A Paragon Termite & Pest Control (“Paragon”).

• February 2006 we acquired substantially all the assets of Pestec Pest Control, Inc. (“Pestec”).

• March 2006 we acquired substantially all the assets of Ron Fee, Inc. (“Ron Fee”).

• November 2006 we acquired substantially all the assets of Archer Exterminators, Inc. (“Archer”).

• February 2007 we acquired substantially all the assets of Valentine’s Indoor Pest Management, Inc. (“Valentine”).

• April 2007 we acquired substantially all the assets of David Burke, Inc., D/B/A Florida Exterminating (“Florida Exterminating”).

• May 2007 we acquired substantially all the assets of Summer Rain Fertilization Company (“Summer Rain”).

• August 2007 we acquired substantially all the assets of Howell Environmental, Inc. (“Howell”).

• September 2007 we acquired substantially all the assets of Longboat Key Pest Control, Inc. (“Longboat Key”).

Divestitures:
• September 2006 we sold substantially all the assets of Sunair Communications, Inc. (“Sunair Communications”) our high frequency radio business.

• November 2006 we sold real estate associated with the previously sold high frequency radio business.

• August 2007 we sold all the issued and outstanding stock of Percipia, Inc. (“Percipia”), a wholly owned subsidiary operating in our Telephone Communications business segment.
On August 1, 2007 we completed the sale of our wholly owned telephone communications subsidiary, Percipia in accordance with a Share Purchase Agreement dated as of July 12, 2007. Pursuant to the Share Purchase Agreement we sold all of the issued and outstanding shares of Percipia for approximately $4.0 million in cash of which $750,000 was placed in an escrow account pending the resolution of certain tax matters. Approximately $3.25 million of the proceeds from the Percipia sale was utilized to pay down the revolving line of credit thereby providing additional availability of funds for future targeted acquisitions. The divestiture of Percipia represents a key transaction for us. With the sale of this subsidiary, we continue to execute our strategy of divesting our non-core assets while growing our core lawn and pest control services business via acquisitions and internally generated growth.
The Lawn and Pest Control Services Segment
The Lawn and Pest Control Services segment acquired its first company on June 7, 2005, through the acquisition by our subsidiary, Sunair Southeast Pest Holdings, Inc., of all of the outstanding capital stock of Middleton Pest Control, Inc., a lawn and pest control company with operations in Central Florida and Florida’s northeastern coast. The aggregate purchase price for the outstanding capital stock of Middleton was $50.0 million, which was comprised of: (i) $35.0 million in cash; (ii) $5.0 million in the form of a subordinated promissory note; and (iii)1,028,807 shares of our common stock. We also incurred closing costs of $1.6 million and assumed $1.4 million of liabilities for a total purchase price of $53.0 million. On July 29, 2005, Middleton acquired substantially all of the assets of Four Seasons Lawn and Pest Control, Inc., a pest control and lawn care services company located in Central Florida, for approximately $1.4 million in cash.
In fiscal 2006, Middleton acquired four pest control companies. On December 16, 2005, Middleton acquired substantially all of the assets of Spa Creek, a pest control and termite services company located in Central Florida, for approximately $5.5 million in cash. We also incurred transaction costs of $233,419 for a total purchase price of $5.7 million. On January 9, 2006, Middleton acquired substantially all of the assets of Paragon, a pest control and termite services company headquartered in Port St. Lucie, Florida, for approximately $1.1 million, consisting of $800,000 cash, $100,000 in the form of a subordinated promissory note, approximately $50,000 in transaction costs and 17,036 shares of our common stock valued at $100,000. On February 28, 2006, Middleton acquired substantially all of the assets of Pestec, a pest control and lawn care services company headquartered in Sarasota, Florida, for approximately $800,000, consisting of $600,000 cash, $175,000 in the form of a subordinated promissory note and $25,000 in transaction costs. On March 31, 2006, Middleton acquired Ron Fee, a pest control and termite services company located in Central Florida, for approximately $5.2 million, consisting of $4.0 million in cash and $1.2 million in the form of a subordinated promissory note. We also incurred transaction costs of approximately $325,000 for a total purchase price of $5,525,000.
In fiscal 2007, Middleton acquired 6 pest control service and lawn care service companies. On November 30, 2006 Middleton acquired substantially all of the assets of Archer, a pest control services company located in Orlando, Florida, for $3.3 million, consisting of $1.5 million in cash, $1.5 million in the form of a subordinated promissory note and 73,529 shares of the Company’s common stock valued at $300,000. We also incurred approximately $150,400 of transactions costs related to this acquisition. On February 8, 2007 Middleton acquired substantially all the assets of Valentine, headquartered in St. Cloud, Florida for approximately $43,400, consisting of $18,432 in cash and $25,000 in the form of a promissory note. On April 30, 2007, Middleton acquired substantially all the assets of Florida Exterminating, a pest control company headquartered in Tampa, Florida for approximately $815,000 consisting of $580,000 in cash and $235,000 in the form of a promissory note. We also incurred approximately $55,000 of transactions costs related to this acquisition. On May 31, 2007, Middleton acquired substantially all the assets of Summer Rain, a lawn care services company headquartered in Margate, Florida for approximately $1.0 million, consisting of $500,000 in cash and $500,000 in the form of a promissory note. We also incurred approximately $161,400 of transactions costs related to this acquisition. On August 27, 2007, Middleton acquired substantially all the assets of Howell, a lawn care and pest control services company located in West Palm Beach, Florida, for approximately $2.3 million, consisting of $925,000 in cash and $1.4 million in the form of a promissory note with $1.0 million secured by a letter of credit. We also incurred approximately $161,500 of transactions costs related to this acquisition. On September 20, 2007, Middleton acquired substantially all of the assets of Longboat Key, a lawn care and pest control services company located in Longboat, Florida for $1.7 million, consisting of $1.0 million in cash, $542,000 in the form of a promissory note and $158,000 to be paid over a two year period at a rate equal to 50% of the collections received by Longboat Key from a large commercial customer. We also incurred approximately $165,700 of transactions costs related to this acquisition.
Subsequent to fiscal 2007, on October 2, 2007, Middleton acquired substantially all of the assets of Marshall Pest Control of SW FL, Inc. (“Marshall”), a lawn care and pest control services company located in Naples, Florida for $1.6 million, consisting of $1.0 million in cash and $600,000 in the form of a promissory note.
In fiscal 2008, we plan to focus on the organic growth of our core business within the Company’s existing market area. Although we do not plan on making any acquisitions of lawn and pest control companies in fiscal 2008 (other than the acquisition of Marshall which we completed on October 2, 2007), we will consider selective acquisitions of lawn care and pest control companies if they are strategic to our business plan.
Business of Middleton
Overview
Middleton, with headquarters located in Orlando, Florida, provides lawn care services and pest control services to both residential and commercial customers. Middleton provides essential pest control services and protection against termite damage, rodents and insects to homes and businesses. In addition, Middleton supplies essential lawn care services to homes and businesses, which includes fertilization treatments and protection against disease, weeds and insects for lawns and shrubs. Middleton operates under Middleton Lawn and Pest Control and Middleton Pest Control, Inc.
Middleton was founded in 1952 as a single location in Orlando, Florida. Middleton has since grown to a network of 29 branches throughout Florida, from which it serves approximately 118,000 accounts.
Seasonality
The lawn and pest control business is seasonal in nature. The termite swarm season, which generally occurs in early spring but varies by region depending on climate, leads to the highest demand for termite control services and therefore the highest level of revenues. Weather conditions, such as hurricanes, affect the demand for lawn care services and may result in a decrease in revenues or an increase in costs.
Customers
As of September 30, 2007, approximately 92% of Middleton’s accounts were residential representing approximately 86% of Middleton’s revenues and approximately 8% of Middleton’s accounts were commercial representing approximately 14% of Middleton’s revenues.

As of September 30, 2007, approximately 38% of Middleton’s customers use more than one service.
Inventories
Middleton has relationships with multiple vendors for lawn and pest control treatment products and maintains a sufficient level of chemicals, materials and other supplies to fulfill its immediate servicing needs and to alleviate any potential short-term shortage in availability from its national network of suppliers.

Competition
The lawn and pest control services industry, a highly fragmented industry which is actively consolidating, is made up of approximately 20,000 pest control firms nationally and approximately 2,300 in Florida. The top five firms account for approximately 30% of revenues in the market and the top 100 firms account for approximately 50% of the revenues. The principal methods of competition include quality of service, name recognition, pricing, assurance of customer satisfaction and reputation.
Lawn Care Services. Competition in the market for lawn care services is strong, coming mainly from large national companies including TruGreen, Chemlawn and, to a lesser extent, from local, independently owned firms and from homeowners who care for their own lawns.
Pest Control Services. Competition in the market for pest control services is strong, coming mainly from thousands of regional and local, independently owned firms, from homeowners who treat their own pest control problems and from Orkin, Inc. and Terminix, which operate on a national basis.
Marketing and Distribution
Middleton markets its services through an integrated marketing communications strategy which includes television advertisement, yellow pages and local print advertising, direct mail, local events and tradeshows, telemarketing and email marketing targeted at reaching both prospective and current customers. Public relation initiatives are also used in targeting key external audiences, including trade, local and consumer media.
Services are sold through two main distribution channels, field sales representatives and the internet. Sales representatives use the point of sale data and targeted collateral materials to conduct door-to door solicitations. Middleton’s website enables customers to order, pay, schedule and request information abut services online.
Environmental and Regulatory Considerations
Middleton is subject to various legislative and regulatory enactments that are designed to protect the environment, public health and consumer protection. Middleton believes that it is in substantial compliance with all such legislative and regulatory requirements. Compliance with these requirements has not had a material negative effect on its financial position, results of operations or liquidity.
The Federal Insecticide Fungicide and Rodentcide Act (as amended) is a federal law that grants the responsibility of the states to be the primary agent in enforcement and conditions under which pest control companies operate. Each state must meet certain guidelines of the Environmental Protection Agency in regulating the following: licensing, record keeping, contracts, standards of application, training and registration of products. This allows each state to institute certain features that set their regulatory programs in keeping with special interests of the citizens’ and the pest control companies’ wishes in each state. Florida has enacted such guidelines which regulate and license the pest control industry in Florida. The pest control industry is impacted by these federal and state regulations.
Employees
The number of persons employed by Middleton as of September 30, 2007 was 609, which includes 137 salespersons, 265 technicians, 81 branch and district managers, 72 office associates, 7 telemarketers, and 47 persons in Middleton’s corporate office.
Subsequent Events
On October 29, 2007, Gregory A. Clendenin, the Chief Executive Officer and President of Middleton and Sunair Southeast Pest Holdings, Inc. (“SSPH”), a wholly-owned subsidiary of the Company, announced that he was retiring from the industry and had resigned from his positions as the Chief Executive Officer of Middleton and SSPH. John J. Hayes, the Company’s Chief Executive Officer, assumed Mr. Clendenin’s responsibilities at Middleton and SSPH. In order to assist in the transition, Mr. Clendenin has agreed to serve as a consultant to the Company. Mr. Clendenin and SSPH entered into a consulting agreement for a period of twelve months to expire on October 28, 2008 in which Mr. Clendenin agreed to provide consulting services on a part-time basis during this time period.
On October 2, 2007, Middleton acquired substantially all of the assets of Marshall Pest Control of SW FL, Inc., a lawn care and pest control services company located in Naples, Florida for $1.6 million, consisting of $1.0 million in cash and $600,000 in the form of a promissory note.
On January 7, 2008, the Company entered into a management services agreement (“Management Services Agreement” or the “Amended Management Services Agreement”) with RPC, which supersedes and replaces the management services agreement (the “Previous Management Services Agreement”) dated February 8, 2005, as amended, between the Company and RPC. Pursuant to the Amended Management Services Agreement, the Company provided RPC with notice that the Previous Management Services Agreement would not be renewed and that the Amended Management Services Agreement would be effective as of February 8, 2008.
The Amended Management Services Agreement will be for a term of three years, commencing on February 8, 2008 and expiring on February 7, 2011. The Company will pay RPC a monthly management fee equal to one (1%) of the monthly gross revenues of the Company, which will be payable monthly based on the average monthly revenue of the preceding quarter. RPC will also receive a transaction fee of up to 2% of the Aggregate Consideration receive by the Company in a Transaction (as such capitalized terms are defined in the Management Services Agreement). Pursuant to the Management Services Agreement, RPC will provide the Company with services similar to those provided in the Previous Management Services Agreement. After the initial term of three years, the Management Services Agreement will automatically renew for successive one year terms, unless either RPC or the Company terminates the agreement upon 30 days notice.

The Telephone Communications Segment
Overview
As of September 30, 2007, our Telecommunications segment consists of Telecom FM Limited (“Telecom FM”), our-wholly owned subsidiary located in the United Kingdom. Telecom FM distributes and installs telecommunications devices providing fixed wireless access to network and data service providers. Its primary service area is Europe, Middle East and Africa. The approximate number of persons employed by Telecom FM is 17.
On August 1, 2007, we completed the divestiture of Percipia, one of our telecommunications subsidiaries. Percipia had specialized in traditional and IP-based telecommunications for selected vertical markets, primarily in the hospitality industry. The financial statements for the year ended September 30, 2007 includes the operations of Percipia as discontinued operations from October 1, 2006 through the date of the divestiture. All prior periods have been restated to reflect the operations of Percipia as discontinued operations.
We intend to divest ourselves of our remaining telecommunications subsidiary, Telecom FM, as soon as is practicable. However, we cannot assure you of the timing of such disposition, or the amount of net proceeds we will receive upon such disposition.

CEO BACKGROUND

Joseph S. DiMartino, 64, was appointed to our Board of Directors on September 9, 2005, to fill a vacancy created by James E. Laurent’s resignation from our Board of Directors. Mr. DiMartino was nominated by Coconut Palm Capital Investors II, Ltd. (“Coconut Palm”), in accordance with a Purchase Agreement, dated November 17, 2004, between us and Coconut Palm. Since 1995, Mr. DiMartino has been the Chairman of the Board and a Director of The Dreyfus Family of Mutual Funds in New York City since January 1995. Mr. DiMartino served as President, Chief Operating Officer and Director of The Dreyfus Corporation from October 1982 until December 1994. Mr. DiMartino also has served since 1997 as a Director and Chairman of the Compensation Committee of Century Business Services, Inc., and also serves as a Director of The Newark Group and the Muscular Dystrophy Association. Mr. DiMartino is a 1965 graduate of Manhattan College and attended New York University’s Graduate School of Business.

Mario B. Ferrari, 30, was appointed Vice Chairman of our Board of Directors on February 4, 2005, at the Annual Meeting of Shareholders. Mr. Ferrari is a partner and co-founder of Royal Palm Capital Partners (RPCP), a private investment and management firm, since its inception in 2002. Mr. Ferrari also serves as a director of publicly held Devcon International Corp. since July 2004. Mr. Ferrari also serves as Chief Strategic Officer of Equity Media Holdings Corporation. From June 2000 to June 2002, Mr. Ferrari was an investment banker with Morgan Stanley & Co. In October, 1997, Mr. Ferrari co-founded PowerUSA, LLC, a retail renewable energy services company and was a managing member until September 1999. Mr. Ferrari received his B. S., magna cum laude, in Finance and International Business from Georgetown University in 2000.

Arnold Heggestad, Ph.D., 64, was appointed to our Board of Directors in March 2003. Dr. Heggestad is the Holloway Professor of Finance and Entrepreneurship at the University of Florida and has been at the University since 1974. Dr. Heggestad has served as Chairman, Department of Finance, Insurance and Real Estate, Associate Dean, College of Business Administration, Director of the Center for Financial Institutions, Executive Director, University of Florida Research Foundation, Associate Vice-President of Entrepreneurial Programs in the Office of Research. Dr. Heggestad is a Director of Intrepid Capital Management, Inc. He has been very active in public service and has served both public and private interests in a number of capacities.

Steven P. Oppenheim, 61, was appointed to our Board of Directors in January 2004, and currently serves on its Audit, Nominating, and Compensation Committees. Mr. Oppenheim is the President and owner of Oppenheim & Associates, Atlanta,Georgia, which, since 2001 has provided a wide range of consulting and strategic planning services to a diversified international clientele in the U.S., Europe and Latin America. Mr. Oppenheim holds a Juris Doctor Degree and maintained his own law firm from 1975 until 2000. Mr. Oppenheim also holds a Bachelor of Business Administration in Accounting from the University of Miami, and from 1973 to 1975 he was tax supervisor with the public accounting firm of Coopers & Lybrand. Mr. Oppenheim serves in various officer capacities for several multinational companies or affiliates involving U.S. business. He serves as a Director of the International Advertising Association and as a Director of the British American Chamber of Commerce. He previously served as a Director of the French-American Chamber of Commerce, Italy-America Chamber of Commerce, and European-American Chamber of Commerce.

Richard C. Rochon, 50, was appointed Chairman of our Board of Directors on February 4, 2005, at the Annual Meeting of Shareholders in connection with Coconut Palm’s investment in the Company, as described in the Purchase Agreement, dated November 17, 2004, between us and Coconut Palm.. Mr. Rochon has served as Chairman and Chief Executive Officer of Royal Palm Capital Partners LLLP, a private investment and management firm, since 2002. Mr. Rochon also has served as a Director of Devcon International Corp., a publicly-held company that provides electronic security and construction services, since July 2004, and as Chairman and Chief Executive Officer of Coconut Palm Acquisition Company, a publicly held special purpose acquisition company, from September 2005 until June 2007. Previously, from 1987 to 2002, Mr. Rochon served as President of Huizenga Holdings, Inc, a management and holding company owned by H. Wayne Huizenga, whose investments included Blockbuster Entertainment Corporation, Republic Waste Industries, Inc., AutoNation, Inc., and Boca Resorts, Inc. Mr. Rochon joined Huizenga Holdings in 1985 as Treasurer and was promoted to President in 1987. Mr. Rochon served as Vice Chairman of Huizenga Holdings and as sole Director for many of Huizenga Holdings’ private and public portfolio companies, including as a Director of AutoNation, Inc., the NHL’s Florida Panthers and the NFL’s Miami Dolphins. Mr. Rochon previously served as Vice Chairman of Boca Resorts, Inc, an owner and operator of luxury resort properties in Florida, from November 1996 to December 2004, while serving as President from March 1998 until January 2002. In addition, Mr. Rochon has been a Director of Bancshares of Florida, a full-service commercial bank, from 2002 until February 2007, and a Director of Century Business Services, a diversified services company, since 1996. From 1979 until 1985 Mr. Rochon was employed as a certified public accountant by the public accounting firm of Coopers & Lybrand. L.L.P. Mr. Rochon received his B.S. in Accounting from Binghamton University (formerly State University of New York at Binghamton) in 1979 and his Certified Public Accounting designation in 1981.

Charles P. Steinmetz, 68, was appointed to our Board of Directors in June 2005, and was appointed to serve as the Chief Executive Officer of Middleton, effective as of January 18, 2008. Mr. Steinmetz was nominated to serve as a director by Coconut Palm, in accordance with a Purchase Agreement, dated November 17, 2004, between us and Coconut Palm, and a Stock Purchase Agreement, dated June 7, 2005, between our subsidiary, Sunair Southeast Pest Holdings, Inc. (“SSPH”), and the selling shareholders of Middleton Pest Control, Inc (“Middleton”). Mr. Steinmetz was the majority owner of Middleton from 1977 until it was purchased by SSPH. Mr. Steinmetz also served in various capacities with Orkin Exterminating Company (1961-1973) and Truly Nolen, Inc. (1974-1977), and led the build-up and sale of All America Termite and Pest Control, Inc. (1982-1997), which at the time of sale was the largest privately owned pest control company in the United States with 125 locations throughout Florida, Georgia, Alabama, North and South Carolina, Louisiana, Tennessee, Mississippi, Arizona and Texas. Mr. Steinmetz received his B.S. in Agriculture, major in Entomology, from the University of Florida.

MANAGEMENT DISCUSSION FROM LATEST 10K

Company Overview
Sunair Services Corporation is a Florida corporation organized in 1956. We changed our corporate name from Sunair Electronics, Inc. to Sunair Services Corporation in November of 2005. Previously, we operated through two business segments: Telephone Communications and High Frequency Radio. In June 2005 with the acquisition of Middleton we embarked on a new strategy to become a leading regional provider of lawn and pest control services focusing mainly on residential customers.
In order to execute our strategy we shifted our focus to the Lawn and Pest Control Services business segment, which resulted in a series of acquisitions and divestitures planned to enable us to shed our legacy businesses (Telephone Communications and High Frequency Radio) and grow our core business, lawn and pest control.
To date the acquisitions and divestitures have been as follows:
Acquisitions:
• June 2005 we acquired the issued and outstanding stock of Middleton, our platform company, a leading provider of lawn and pest control services in Florida.

• July 2005 we acquired substantially all the assets of Four Seasons.

• December 2005 we acquired substantially all the assets of Spa Creek.

• January 2006 we acquired substantially all the assets of Paragon.

• February 2006 we acquired substantially all the assets of Pestec.

• March 2006 we acquired substantially all the assets of Ron Fee.

• November 2006 we acquired substantially all the assets of Archer.

• February 2007 we acquired substantially all the assets of Valentine.

• April 2007 we acquired substantially all the assets of Florida Exterminating.

• May 2007 we acquired substantially all the assets of Summer Rain.

• August 2007 we acquired substantially all the assets of Howell.

• September 2007 we acquired substantially all the assets of Longboat Key.
All of these acquisitions of lawn care and pest control companies have been made by Middleton, our platform company, and are being integrated into its operations.

Dispositions:
• September 2006 we sold substantially all the assets of Sunair Communications our high frequency radio business.

• November 2006 we sold real estate associated with the previously sold high frequency radio business.

• August 2007 we sold all the issued and outstanding stock of Percipia, a wholly owned subsidiary operating in our Telephone Communications business segment.
The divestiture of Percipia represents a key transaction for us. With the sale of this subsidiary, we continue to execute our strategy of divesting our non-core assets while growing our core Lawn and Pest Control Services business via acquisitions and internally generated growth. Approximately $3.25 million of the $4 million in proceeds from the Percipia sale were utilized to pay down the revolving line of credit thereby providing additional availability of funds for future targeted acquisitions.
In August 2007, the Company sold Percipia. In September 2006, the Company sold its high frequency single sideband communication business. For purposes of comparability, the results of operations for our telecommunications and high frequency radio segments have been reclassified from continuing operations to discontinued operations for all fiscal years presented in the accompanying consolidated statements of operations.
We intend to divest ourselves of our remaining telecommunications subsidiary, Telecom FM, as soon as is practicable. However, we cannot assure you of the timing of such disposition, or the amount of net proceeds we will receive upon such disposition.
Results of Operations
Fiscal Year Ended September 30, 2007 (“fiscal 2007”) compared to the Fiscal Year ended September 30, 2006 (“fiscal 2006”)

Lawn and Pest Control Services
Revenue from the lawn and pest control services segment is comprised of lawn, pest control and termite services. Revenue in the segment increased $6.0 million or 12.9% in fiscal 2007 as compared to fiscal 2006.
• Renewals increased $8.2 million or 22.9% in fiscal 2007 as compared to fiscal 2006. The most significant increase was in lawn and shrub spray services of $5.6 million. Renewal of termite baiting services were immaterial in fiscal 2006. In fiscal 2007 the service increased by $1.9 million or 1227.5% as compared to fiscal 2006.

• New and one time sales declined $1.5 million or 12.3% in fiscal 2007 as compared to fiscal 2006. New business leads and lead conversions did not occur in fiscal 2007 as expected.

• Sales discounts and allowances increased by $0.4 million or 46.7% in fiscal 2007 as compared to fiscal 2006 due to aggressive sales promotions.

Telephone Communications
Our Telephone Communications segment installs and maintains telephone and fixed wireless services. Revenue from telephone communications increased by $7.8 million or 200.8% in fiscal 2007 as compared to fiscal 2006:
• CPE (Customer Premises Equipment) sales accounted for the majority of the year-over-year increase. CPE sales increased by $7.8 million over the same period in the prior year due to a series of large orders received and fulfilled in the second and third quarter of fiscal 2007. We were able to meet a short-term demand for lead-free components, which complied with new legislation.
Cost of Sales:

Lawn and Pest Control Services
Cost of sales in the lawn and pest control services segment increased $1.2 million or 6.4% in fiscal 2007 as compared to fiscal 2006.
• Chemicals and supplies increased slightly by $0.2 million or 3.6% in fiscal 2007 as compared to fiscal 2006. Lawn service costs decreased by $0.7 million as compared to the same period last year. A decrease in the label rate of some chemicals reduced the amount required for the same effect. Generic versions of lawn and shrub chemicals used in fiscal 2007 lowered costs while maintaining quality. Termite baiting chemicals increased $0.6 million in fiscal 2007 primarily due to the growth in termite services related to the acquisition of Archer.

• Direct payroll expenses increased $0.9 million due to acquisitions and increased demand for services. The payroll associated with termite services increased $0.7 million as termite baiting became a more significant source of revenue. The lawn service payroll increased by $0.3 million while pest control service payroll decreased by $0.1 million.
Telephone Communications
Cost of sales in our telephone communications segment increased $3.8 million or 213.2% in fiscal 2007 as compared to fiscal 2006.
• The increase in costs was directly related to the growth in CPE sales. Cellroute costs increased $3.2 million and GSMBR (digital routing devices) costs increased $1.1 million, consistent with the increase in sales volume. GSM route costs decreased by $0.2 million.
Gross Profit:

Lawn and Pest Control Services
The gross profit of the lawn and pest control services segment increased by $4.8 million or 17.1% in fiscal 2007 as compared to fiscal 2006:
• Our gross profit increased significantly as we grew sales by $6.0 million while holding cost of sales to a $1.2 million increase.

• Our gross margin expanded to 63.2% in fiscal 2007 compared to a gross margin of 61.0% in fiscal 2006. At the end of fiscal 2006 we began providing a bimonthly versus quarterly service. Revenue generated from the service remained unchanged, however the more frequent care allowed us to use different, less expensive chemicals.
Telephone Communications
The gross profit in the telecommunications segment increased $4.0 million or 190.3% in fiscal 2007 as compared to fiscal 2006.
• Gross profit rose significantly, almost in direct proportion to the related sales revenue and cost of sales increases.

• Our gross margin decreased slightly to 52.2% in fiscal 2007 as compared to 54.1% in fiscal 2006, due to a shift in product mix.
Operating Expenses:

Selling, general and administrative expenses (“SG&A expense”) increased $7.4 million or 23.8% in fiscal 2007 as compared to fiscal 2006.
Selling expenses increased by $1.2 million or 15.7% in fiscal 2007 as compared to fiscal 2006.
• Middleton’s selling expenses increased by $0.5 million or 7.4% in fiscal 2007 as compared to fiscal 2006. Total advertising expenses increased in fiscal 2007 by $0.5 million due to a greater use of television media. The sales payroll decreased slightly by $0.1 million as compared to the same period last year.

• Selling expenses in the telephone communications segment increased by $0.7 million. Sales commissions increased by $0.7 million as compared to the same period last year, directly related to the strong growth in revenue.
General and administrative expenses increased by $6.1 million or 26.5% in fiscal 2007 as compared to fiscal 2006.
• Corporate general and administrative expenses increased by $1.0 million or 27.0% in fiscal 2007 as compared to fiscal 2006. Professional and other administrative fees increased by $0.7 million primarily due to increased activity related to Sarbanes Oxley compliance and other corporate governance matters including acquisitions and divestures while corporate payroll increased by $0.2 million as compared to the same period in the prior year.

• Middleton’s general and administrative expenses increased by $4.2 million or 23.7% in fiscal 2007 as compared to fiscal 2006. The increase was primarily driven by payroll expenses which increased $2.6 million in fiscal 2007 as compared to fiscal 2006 as a result of the purchase and integration of several acquisitions. Occupancy expenses increased by $0.5 million due to our expansion and increased lease rates. Group health insurance costs increased by $0.3 million directly related to our payroll growth and professional fees increased by $0.2 million as compared to the same period last year due to efforts related to Sarbanes-Oxley compliance. Printed material costs increased by $0.2 due to an increase in activity.

• Telephone communication general and administrative expenses increased by $1.0 million or 52.6% in fiscal 2007 as compared to fiscal 2006. Administrative salaries increased by $0.2 million, courier costs increased by $0.2 million and subcontractor development costs increased by $0.2 million as compared to the same period last year. The increase in general and administrative expenses in fiscal 2007 was directly related to the ramp up of the operations required to fulfill the large volume of orders received.
Depreciation and amortization expenses increased by $1.0 million or 43.2% in fiscal 2007 as compared to fiscal 2006.
• Corporate depreciation and amortization expenses increased by $0.7 million or 49.6% in fiscal 2007 as compared to fiscal 2006 due to a significant increase in the amortization of intangible assets coupled with the change in estimated useful life for customer lists from 8 years to 5 years, which occurred during the fourth quarter of fiscal 2007. This change in estimate increased amortization expense by approximately $0.4 million.

• Middleton’s depreciation and amortization expenses increased by $0.1 million or 12.1% in fiscal 2007 as compared to fiscal 2006. The majority of the increase was related to increased depreciation for the acquired office and computer equipment and the increased use of handheld devices.

• Telephone communication depreciation and amortization expenses increased by $0.2 million or 79.9% in fiscal 2007 as compared to fiscal 2006 a result of increased amortization costs related to software intangibles.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
Results of Operations for the Three Months Ended June 30, 2008 as Compared to the Three Months Ended June 30, 2007.

Lawn and Pest Control Services
Revenue from the lawn and pest control services segment is comprised of lawn, pest control and termite services. Revenue in the segment increased by $1.4 million or 10.5% for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The revenue increase was primarily attributable to the integration of our acquisitions since March 31, 2007.
Telephone Communications
Our remaining telephone communications subsidiary, Telecom FM, manufactures and sells least-cost routing devices. Revenue from Telecom FM decreased by $0.1million or 2.4% for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007.

Lawn and Pest Control Services
Cost of sales in the lawn and pest control services segment increased by $0.5 million or 10.3% to $5.5 million or 38.0% of revenue for the three months ended June 30, 2008 as compared to $5.0 million or 38.0% of revenue for the three months ended June 30, 2007.
• Chemical costs increased by $0.2 million for the three months ended June 30, 2008 as compared to the same period in 2007. The price of petroleum based chemical and fertilizer products increased due to higher oil prices.

• Payroll costs increased by $0.2 million for the three months ended June 30, 2008 as compared to the same period in 2007 due to an increase in activity and wage increases.

• Vehicle costs increased by $0.1 million for the three months ended June 30, 2008 compared to the same period in 2007 primarily due to an increase in fuel and vehicle maintenance costs.
Telephone Communications
Cost of sales in our telephone communications segment decreased by $0.2 million or 10.8% to $1.8 million or 43.8% of revenue for the three months ended June 30, 2008 as compared to $2.0 million or 48.0% of revenue for the three months ended June 30, 2007, primarily related to a decrease in product costs due to a shift in product mix.
Gross Profit:

Lawn and Pest Control Services
Cost of sales in the lawn and pest control services segment increased by $0.5 million or 10.3% to $5.5 million or 38.0% of revenue for the three months ended June 30, 2008 as compared to $5.0 million or 38.0% of revenue for the three months ended June 30, 2007.
• Chemical costs increased by $0.2 million for the three months ended June 30, 2008 as compared to the same period in 2007. The price of petroleum based chemical and fertilizer products increased due to higher oil prices.

• Payroll costs increased by $0.2 million for the three months ended June 30, 2008 as compared to the same period in 2007 due to an increase in activity and wage increases.

• Vehicle costs increased by $0.1 million for the three months ended June 30, 2008 compared to the same period in 2007 primarily due to an increase in fuel and vehicle maintenance costs.
Telephone Communications
Cost of sales in our telephone communications segment decreased by $0.2 million or 10.8% to $1.8 million or 43.8% of revenue for the three months ended June 30, 2008 as compared to $2.0 million or 48.0% of revenue for the three months ended June 30, 2007, primarily related to a decrease in product costs due to a shift in product mix.
Gross Profit:

Operating Expenses:

Total operating expenses increased by $0.9 million or 8.6% to $11.3 million or 60.4% of revenue for the three months ended June 30, 2008 as compared to $10.4 million or 59.7% of revenue for the three months ended June 30, 2007.
Selling expenses decreased by $0.2 million or 9.3% to $2.3 million or 12.1% of revenue for the three months ended June 30, 2008 as compared to $2.5 million or 14.3% of revenue for the three months ended June 30, 2007.
• Middleton’s selling costs decreased by $0.2 million for the three months ended June 30, 2008 as compared to the same time period in 2007 as a result of a decrease in advertising expense.
General and administrative expenses increased by $0.7 million or 9.3% to $7.9 million or 42.1% of revenue for the three months ended June 30, 2008 as compared to $7.2 million or 41.4% of revenue for the three months ended June 30, 2008.
• Middleton’s general and administrative expenses increased by $0.8 million for the three months ended June 30, 2008 as compared to the same period in 2007. The increase in general and administrative expenses was primarily driven by:
• Payroll expenses increased by $0.2 million for the three month period ended June 30, 2008 as compared to the same period in 2007 as a result of the increase in staff due to the purchase and integration of several acquired companies, expansion of staff related to meeting our compliance requirements with regards to Sarbanes-Oxley and an increase in staff related to the conversion of our existing operating software to a new system.

• Vehicle expenses increased by $0.3 million due to higher fuel and maintenance costs. Occupancy expenses increased by $0.1 million due to our expansion and increased facility lease rates.

• Customer damage expenses increased $0.1 for the three months ended June 30, 2008 as compared to the same period in 2007. During the quarter ended June 30, 2007 the reserve for customer damages was reduced by $0.2 based on historical trends in claims.

• The Company moved to a lockbox system in August 2007. Lockbox fees and statement fulfillment expenses were $0.1 million for the three months ended June 30, 2008. There were no lockbox fees and statement costs for the same time period in 2007. The implementation of a lockbox system has enabled us to streamline our billing and cash receipts processing and has improved our ability to manage cash flow.
Depreciation and amortization expenses increased by $0.5 million or 65.1% to $1.2 million or 6.2% of revenue for the three months ended June 30, 2008 as compared to $0.7 million or 4.0% of revenue for the three months ended June 30, 2007.
• Corporate depreciation and amortization expenses increased by $0.5 million for the three months ended June 30, 2008 as compared to the same period in 2007 mostly attributable to an increase in the amortization of intangible assets due to our acquisition activity coupled with the change in estimated useful life for customer lists from 8 years to 5 years, which occurred during the fourth quarter of fiscal year 2007.

Other expenses increased by $0.1 million or 55.5% for the three months ended June 30, 2008 as compared to the three months ended June 30, 2008 primarily related to an increase in interest expense. Since June 30, 2007, the lawn and pest services segment incurred an additional $2.5 million in debt related to acquisitions completed. Additionally, our revolving line of credit average outstanding balance increased to approximately $10.0 million for the three months ended June 30, 2008 from approximately $7.0 million for the three months ended June 30, 2007.

The income tax provision from continuing operations decreased slightly for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The income tax provision of $7,051 for the three months ended June 30, 2008 relates to foreign income taxes incurred by Telecom FM. The Company did not recognize an income tax benefit for the three months ended June 30, 2008 as the Company has $13.5 million of net operating losses carryforwards which expire in 2026 and which are fully reserved. In addition, the Company does not have any net operating loss carrybacks.

As indicated earlier, our significant divestitures have been recorded as discontinued operations:
• On August 1, 2007, we sold all the outstanding shares of Percipia. The results of operations for the three months ended June 30, 2007 related to Percipia have been classified as discontinued operations.

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