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, 1996. 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. DELAWARE 11-2014231 ____________________________________________________________________________ (State of other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 500 North Broadway, Suite 240, Jericho, New York 11753 (516) 937-3420 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 - 2,004,046 shares outstanding as of May 13, 1996. =========================================================================== Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the nine months For the three months ended March 31, ended March 31, 1996 1995 1996 1995 Net Sales $ 3,022,791 $ 3,153,465 $ 1,072,171 $ 1,084,575 Cost of goods sold 1,880,233 1,917,741 662,801 654,308 Gross Profit 1,142,558 1,235,724 409,370 430,267 Selling, general and administrative expenses 858,137 866,576 280,969 305,146 Research & development 210,106 216,128 68,433 71,670 Interest expense -- 754 -- -- Royalty,interest and other income (9,209) (6,103) (2,177) (503) 1,059,034 1,077,355 347,225 376,313 Earnings before provision for income taxes 83,524 158,369 62,145 53,954 Provision for income taxes 33,400 53,934 24,900 21,584 Net Earnings $ 50,124 $ 104,435 $ 37,245 $ 32,370 ============================================================================ Earnings per common share (Note B) $ .03 $ .05 $ .02 $ .02 ============================================================================ Weighted average number of shares outstanding 2,004,046 2,004,046 2,004,046 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS March 31, June 30, 1996 1995 Current Assets Cash and cash equivalents $ 333,029 $ 297,157 Accounts receivable, net 619,231 598,281 Inventories 1,496,485 1,498,562 Prepaid expenses 34,453 16,141 Total current assets 2,483,198 2,410,141 Property and equipment - at cost Machinery and equipment 466,488 450,498 Furniture and fixtures 88,564 88,564 Leasehold improvements 8,765 8,765 563,817 547,827 Less accumulated depreciation 504,313 478,708 59,504 69,119 Other assets Goodwill, net of accumulated amortization of $361,984 on March 31, 1996 and $339,621 on June 30, 1995 830,716 853,079 Other, net 23,594 29,692 854,310 882,771 $3,397,012 $3,362,031 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, June 30, 1996 1995 Current Liabilities Accounts payable $ 173,926 $ 196,378 Accrued liabilities 175,007 154,156 Income taxes payable 17,423 30,965 Total current liabilities 366,356 381,499 Stockholders' Equity Preferred stock, $1 par value, 200,000 shares authorized, none issued or outstanding Common stock, $.025 par value, 6,000,000 shares authorized, 2,030,296 shares issued, 2,004,046 shares outstanding 50,757 50,757 Additional paid-in capital 2,107,173 2,107,173 Retained earnings 941,476 891,352 3,099,406 3,049,282 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) 3,030,656 2,980,532 $3,397,012 $3,362,031 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) For the nine months ended March 31, 1996 1995 Cash flows from operating activities Net earnings $ 50,124 $ 104,435 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 54,066 56,730 (Increase) decrease in operating assets Accounts receivable (20,950) 55,094 Inventories 2,077 (47,231) Prepaid expenses and other (18,312) (11,373) Increase (decrease) in operating liabilities Accounts payable (22,452) 40,711 Accrued liabilities 20,851 (28,630) Income taxes payable (13,542) 25,899 Net cash provided by operating activities 51,862 195,635 Cash flows from investing activities Capital expenditures (15,990) (15,767) Net cash used in investing activities (15,990) (15,767) Cash flows from financing activities Principal payment of long term debt (25,000) Net cash used in financing activities (25,000) Net increase in cash and cash equivalents 35,872 154,868 Cash and cash equivalents at beginning of year 297,157 180,653 Cash and cash equivalents at end of nine months $ 333,029 $ 335,521 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Interest $ -- $ 754 Income taxes $ 46,942 $ 25,489 [FN] METRO TEL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - 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 Annual Report on Form 10-KSB for the year ended June 30, 1995. Note B - Earnings Per Common Share: Earnings per common share is based upon the weighted average number of shares of common stock outstanding during the year. Stock options have not been included in the calculation since their inclusion would not be materially dilutive. Management's Discussion and Analysis of Financial Condition and Results of Operation Liquidity and Capital Resources During the nine month period ended March 31, 1996, cash increased by $35,872. Of the cash generated by operating activities ($51,862), $50,124 was derived from net income and $54,066 was derived from non-cash expense for depreciation and amortization. These were offset, in part, by the use of cash primarily to support higher receivables and prepaid expenses. Cash of $15,990 was used to purchase capital assets. The Company believes that the cash which it expects to generate from operations will be sufficient to meet operational needs. Results of Operations Net sales for the nine month and three month periods ended March 31, 1996 decreased by $130,674 (4.1%), and $12,404 (1.1%), respectively, from the comparable periods of fiscal 1995. The decrease in sales for the nine month and three month period was primarily due to a reduction in foreign sales and a continuing reduction in sales to the Regional Bell Operating Companies (RBOCs). Prices for the periods remained constant. Sales of telephone test equipment decreased by $248,140 (9.3%) and $30,666 (3.3%) for the nine and three month periods, respectively, of of fiscal 1996 from the same periods of fiscal 1995. These decreases were attributable to the reduction in sales of older products to the RBOCs, which seem to have stabilized for the third quarter. Sales of customer premise equipment increased by $191,140 (82.5%) and $64,660 (111.18%) for the nine and three month periods, respectively, of fiscal 1996 from the same periods of fiscal 1995. These increases were primarily due to increased shipments of data products (CSU/DSU) to a large long distance telephone company. Sales of spares, repairs and miscellaneous products decreased by $75,844 (30.0%) for the nine month period and $46,102 (47.2%) in the third quarter due to a foreign engineering contract which was completed during the fourth quarter of fiscal 1995. The Company's gross profit margin, expressed as a percentage of sales, decreased to 37.8% for the first nine months of fiscal 1996 from 39.2% for the same period of fiscal 1995. Gross profit margin for the third quarter decreased to 38.2% in fiscal 1996 from 39.7% in fiscal 1995. The change during the nine month period related primarily to the reduction of sales for the period which reduces the ability of the Company to absorb its fixed expenses. During the third quarter, the change was mainly attributable to a change in product mix whereby products with lower margins outsold products with higher margins. Selling, general and administrative expenses decreased by $8,439 (1.0%) and $24,177 (7.9%) for the nine and three month periods, respectively, in fiscal 1996 from fiscal 1995. The reduction in expenses for both periods was attributable primarily to a reduction in advertising and royalty expenses, due to the renegotiating of a royalty agreement. Research and development expenses decreased by $6,022 (2.8%) and $3,237 (4.5%) for the nine and three month periods, respectively, in fiscal 1996 over fiscal 1995 due to decreases in engineering supplies and hospitalization expenses. The provision for income taxes in the nine month period of fiscal 1995 (34.1%) was lower than by applying statutory rates as a result of a tax refund credit received during the second quarter. The effective rate in all other periods was approximately 40%. PART 11 - OTHER INFORMATION Item 7. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1996. 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 13, 1996 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description Page 27 Financial Data Schedule 10