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 December 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. ___________________________________________________________________________ (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 ___________________________________________________________________________ (Adress 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 - 2,054,046 shares outstanding as of February 13, 1997 =========================================================================== Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the six months For the three months ended December 31, ended December 31, 1996 1995 1996 1995 ____________________________________________________________________________ Net sales $1,752,930 $1,950,620 $ 736,680 $1,027,608 Cost of goods sold 1,131,990 1,217,432 505,376 626,713 ____________________________________________________________________________ Gross profit 620,940 733,188 231,304 400,895 ____________________________________________________________________________ Selling, general, and administrative expenses 589,913 577,168 309,528 280,354 Research and development 132,095 141,673 63,492 68,860 Interest and other income (2,670) (7,032) (1,298) (6,726) ____________________________________________________________________________ 719,338 711,809 371,722 342,488 ____________________________________________________________________________ Earnings (loss) before provision (credit) for income taxes (98,398) 21,379 (140,418) 58,407 Provision (credit) for income taxes (39,400) 8,500 (56,200) 23,300 ____________________________________________________________________________ Net earnings (loss) $ (58,998) $ 12,879 $ (84,218) $ 35,107 ============================================================================ Earnings (loss) per common share (Note B) $ (.03) $ .01 $ (.04) $ .02 ========================================================================== Weighted average number of shares outstanding (Note B) 2,004,046 2,004,046 2,004,046 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS ____________________________________________________________________________ December 31, June 30, 1996 1996 ____________________________________________________________________________ Current Assets Cash and cash equivalents $ 219,798 $ 411,924 Accounts receivable, net 475,899 716,103 Inventories 1,533,427 1,413,379 Prepaid expenses and other 117,682 14,254 Deferred income taxes 31,000 31,000 ____________________________________________________________________________ Total current assets 2,377,806 2,586,660 Property and equipment - at cost Machinery and equipment 503,539 470,433 Furniture and fixtures 89,647 88,414 Leasehold improvements 8,765 8,765 ____________________________________________________________________________ 601,951 567,612 Less accumulated depreciation 493,782 477,054 ____________________________________________________________________________ 108,169 90,558 Other assets Goodwill, net of accumulated amortization of $384,346 on December 31, 1996 and $369,438 on June 30, 1996 808,354 823,262 Other, net 20,904 21,562 ____________________________________________________________________________ 829,258 844,824 - --------------------------------------------------------------------------- $3,315,233 $3,522,042 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________________________________________________ December 31, June 30, 1996 1996 ____________________________________________________________________________ Current Liabilities Accounts payable $ 121,388 $ 209,968 Accrued liabilities 133,839 174,204 Income taxes payable 18,866 _____________________________________________________________________________ Total current liabilities 255,227 403,038 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 956,826 1,015,824 _____________________________________________________________________________ 3,114,756 3,173,754 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) _____________________________________________________________________________ 3,046,006 3,105,004 _____________________________________________________________________________ $3,315,233 $3,522,042 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) ____________________________________________________________________________ For the six months ended December 31, 1996 1995 ____________________________________________________________________________ Cash flows from operating activities Net earnings (loss) $ (58,998) $ 12,879 Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 32,292 36,044 (Increase) decrease in operating assets Accounts receivable 240,204 19,662 Inventories (120,048) (21,664) Prepaid expenses and other (103,426) (24,724) Increase (decrease) in operating liabilities Accounts payable (88,580) (48,430) Accrued liabilities (40,365) (22,397) Income taxes payable (18,866) (21,041) ____________________________________________________________________________ Net cash (used) provided by operating activities (157,787) (69,671) ____________________________________________________________________________ Cash flows from investing activities Capital expenditures (34,339) (15,990) ____________________________________________________________________________ Net cash used in investing activities (34,339) (15,990) ____________________________________________________________________________ Net increase (decrease) in cash and cash equivalents (192,126) (85,661) Cash and cash equivalents at beginning of year 411,924 297,157 ____________________________________________________________________________ Cash and cash equivalents at end of period $ 219,798 $ 211,496 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Income taxes $ 60,627 $ 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 statements 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 December 31, 1996, cash decreased by $192,126. The decrease resulted from $157,787 used by operating activities and $34,339 used in investing activities to purchase capital assets. A portion of the Company's existing cash, together with cash generated by the collection of accounts receivable ($240,204), were used to fund increases in inventories ($120,048) and prepaid expenses ($103,426) and a decrease in current liabilities ($147,811), as well as the Company's cash loss ($26,706), net of depreciation. The Company believes that the cash it expects to generate from operations will be sufficient to meet operational needs. Results of Operations Net sales for the three month period ended December 31, 1996 decreased by $290,928 (28.3%) from the comparable period of fiscal 1996. This decrease offset an increase in sales in the first quarter and caused a $197,690 (10.1%) overall decrease in net sales for the full six month reported fiscal 1997 period. The decrease in comparable sales was mainly due to the completion, in the second quarter of fiscal 1996, of a substantial contract for CSU/DSU data devices in customer premise equipment and, to a lessor degree, to an overall reduction, in the second quarter of fiscal 1997, in sales of test equipment to the Regional Bell Operating Companies (RBOCs) due to year end budget constraints. Sales of telephone test equipment decreased by $68,870 (9.3%) for the three month period ended December 31, 1996 although,due to increases in the first quarter of fiscal 1997, sales were $86,689 (5.7%) higher for the overall six months of fiscal 1997 than for the first half of fiscal 1996. Due principally to the completion of the CSU/DSU contract referred above, sales of customer premise equipment decreased by $234,360 (78.1%) and $201,846 (87.4%) for the six and three month periods, respectively, from the comparable periods of fiscal 1996. Sales of spare parts, repairs and miscellaneous products decreased by $47,892 (38.2%) and $20,692 (36.1%) for the six and three month periods, respectively. Prices remained mostly constant though all reporting periods. The Company's gross profit margin, expressed as a percentage of sales, decreased to 35.4% for the six month period of fiscal 1997 from 37.6% for the same period of fiscal 1996. Gross profit margin decreased to 31.4% for the second quarter of fiscal 1997 from 39.0%. The decreases were due to the reduction in sales which affected the ability of the Company to absorb its fixed expenses and also offset decreases of 10.2% in the six month period and 7.5% in the three month period in variable overhead expenses caused mainly by a decrease in indirect labor. Selling, general and administrative expenses increased by $29,175 (10.4%) in the second quarter of fiscal 1997 over the comparable period of fiscal 1996, offsetting a decrease in this category of expenses for the first quarter and producing a net increase of $12,747 (2.2%) for the six month fiscal 1997 period. For the six month period, general and administrative expenses decreased by 2.8% which, to a large degree, offset increases in sales expense of 10.7% due mainly to increases in advertising and salaries. The increase for the second quarter of fiscal 1997 was mainly due to sales expense increases in advertising, salaries, and royalties which offset a decrease in general and administrative expenses. Research and development expenses decreased by $9,578 (6.8%) and $5,368 (7.8%) for the six and three month periods, respectively, in fiscal 1997 over the comparable fiscal 1996 periods due to decreases in payroll and payroll expenses. Interest and other income decreased by $4,362 and $5,428 for the six and three month periods in fiscal 1997 from the same periods in fiscal 1996. The effective tax rate for each reported period 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 December 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: February 12, 1997 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule