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 September 30, 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. ___________________________________________________________________________ (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.) 250 South Milpitas Blvd., Milpitas, California 95035 ___________________________________________________________________________ (Address of principal executive offices) (408) 946-4600 - --------------------------------------------------------------------------- (Issuer's telephone number) 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 October 15, 1996 =========================================================================== Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the three months ended September 30, 1996 1995 Net Sales $ 1,016,250 $ 923,012 Cost of goods sold 626,614 590,719 ____________________________________________________________________________ Gross Profit 389,636 332,293 ____________________________________________________________________________ Selling, general and administrative expenses 280,385 296,814 Research & development 68,603 72,813 Interest and other income (1,372) (306) ____________________________________________________________________________ 347,616 369,321 Earnings (loss) before provision for income taxes 42,020 (37,028) Provision (credit) for income taxes 16,800 (14800) ____________________________________________________________________________ Net Earnings $ 25,220 $ (22,228) ============================================================================ Earnings per common share (Note B) $ .01 $ (.01) ============================================================================ Weighted average number of shares outstanding (Note B) 2,004,046 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS September 30, June 30, 1996 1996 Current Assets Cash and cash equivalents $ 367,974 $ 411,924 Accounts receivable, net 501,363 716,103 Inventories 1,553,195 1,413,379 Prepaid expenses and other 44,644 14,254 Deferred income taxes 31,000 31,000 ____________________________________________________________________________ Total current assets 2,498,176 2,586,660 Property and equipment - at cost Machinery and equipment 478,110 470,433 Furniture and fixtures 88,963 88,414 Leasehold improvements 8,765 8,765 ____________________________________________________________________________ 575,838 567,612 Less accumulated depreciation 485,418 477,054 ____________________________________________________________________________ 90,420 90,558 Other assets Goodwill, net of accumulated amortization of $376,893 on September 30, 1996 and $369,438 on June 30, 1996 815,807 823,262 Other, net 21,233 21,562 ____________________________________________________________________________ 837,040 844,824 $3,425,636 $3,522,042 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, June 30, 1996 1996 Current Liabilities Accounts payable $ 159,343 $ 209,968 Accrued liabilities 117,330 174,204 Income taxes payable 4,739 18,866 _____________________________________________________________________________ Total current liabilities 281,412 403,038 Defrred Income Taxes 14,000 14,000 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 1,041,044 1,015,824 _____________________________________________________________________________ 3,198,974 3,173,754 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) _____________________________________________________________________________ 3,130,224 3,105,004 _____________________________________________________________________________ $3,425,636 $3,522,042 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) For the three months ended September 30, 1996 1995 Cash flows from operating activities Net earnings (loss) $ 25,220 $ (22,228) Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 16,147 18,022 (Increase) decrease in operating assets Accounts receivable 214,740 166,689 Inventories (139,816) (16,609) Prepaid expenses and other (30,390) (55,753) Increase (decrease) in operating liabilities Accounts payable (50,625) (58,608) Accrued liabilities (56,873) 17,392 Income taxes payable (14,127) (30,965) ____________________________________________________________________________ Net cash (used) provided by operating activities (35,724) 17,940 ____________________________________________________________________________ Cash flows from investing activities Capital expenditures (8,226) (15,556) ____________________________________________________________________________ Net cash used in investing activities (8,226) (15,556) ___________________________________________________________________________ Net increase (decrease) in cash and cash equivalents (43,950) 2,384 Cash and cash equivalents at beginning of year 411,924 297,157 ____________________________________________________________________________ Cash and cash equivalents at end of period $ 367,974 $ 299,541 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Income taxes $ 30,927 $ 29,540 [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, 1996. 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 three month period ended September 30, 1996, cash decreased by $43,950. The decrease included $35,724 used by operating activities and $8,226 used to purchase capital assets. Cash generated by profits ($25,220) and depreciation ($16,147) were used in operations to support changes in operating assets and liabilities, primarily a temporary increase in inventories ($139,816) and decrease in liabilities ($121,625), offset in part by a reduction in accounts receivable ($214,740). 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 inreased by $93,238 (10.1%) in the first quarter of fiscal 1997 from the same period in fiscal 1996. The increase in sales in the current year's first quarter was mainly due to increased sales of new test equipment products to the Regional Bell Operating Companies (RBOCs). Prices remained constant. Sales of telephone test equipment increased by $155,559 (19.8%) in the first quarter of fiscal 1997 from the same period in fiscal 1996, with increases in sales of outside plant test sets (23.6%) and installer's test sets (53.4%) being offset, in part, by decreases in transmission test equipment (49.0%). Sales of customer's premise equipment decreased by $32,514 (46.9%) during the first three months of fiscal 1997 when compared to the same period of fiscal 1996, which period included substantial sales of CSU/DSU products to a large interexchange carrier during fiscal 1996. Sales of miscellaneous products, parts and repairs decreased by $27,200 (39.9%). The Company's gross profit margin, expressed as a percentage of sales, improved to 38.3% in the first quarter of fiscal 1997 from 36.0% for the same period of fiscal 1996. The improvement was mainly due to the increased level of sales which permitted the Company to better absorb its fixed expenses and to the retirement of the VP of Manufacturing which reduced indirect labor expenses. Selling, general and administrative expenses decreased in dollar amount by $16,429 (5.5%) for the first quarter of fiscal 1997 from the comparable period of fiscal 1996. The decrease was mainly due to a reduction in sales expense (19.1%) which was partially offset by an incraese in certain administration expenses (3.6%). The improvement in the percentage of these categories of expenses to sales (to 27.6% in the first quarter of fiscal 1997 compared to 32.2% in the first quarter of fiscal 1996) was due to a combination of the decreased level of expense and increased level of sales. Research and development expenses decreased by $4,210 (5.8%) due to salaries associated with staff changes. PART 11 - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's 1996 Annual Meeting of Stockholders held on November 6, 1996, stockholders re-elected the Company's existing Board of Directors by the following votes: For Withheld Michael Epstein 1,452,234 9,585 Lloyd Frank 1,452,234 9,585 Venerando J. Indelicato 1,452,722 9,097 Michael Michaelson 1,452,722 9,097 Item 7. Exhibits and Reports on Form 8-K (a) Exhibits 10. The Company's 1991 Stock Option Plan, as amended. This exhibit is designated as a compensatory plan 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 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: November 12, 1996 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description 10. The Company's 1991 Stock Option Plan. This exhibit is designated as a compensatory plan. 27 Financial Data Schedule