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, 1997 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 May 5, 1997 =========================================================================== Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the nine months For the three months ended March 31, ended March 31, 1997 1996 1997 1996 ____________________________________________________________________________ Net sales $2,821,220 $3,022,791 $1,068,290 $1,072,171 Cost of goods sold 1,761,387 1,880,233 629,397 662,801 ____________________________________________________________________________ Gross profit 1,059,833 1,142,558 438,893 409,370 ____________________________________________________________________________ Selling, general, and administrative expenses 899,713 858,137 309,800 280,969 Research and development 184,075 210,106 51,980 68,433 Interest and other income (4,362) (9,209) (1,692) (2,177) ____________________________________________________________________________ 1,079,426 1,059,034 360,088 347,225 ____________________________________________________________________________ Earnings (loss) before provision (credit) for income taxes (19,593) 83,524 78,805 62,145 Provision (credit) for income taxes (7,800) 33,400 31,600 24,900 ____________________________________________________________________________ Net earnings (loss) $ (11,793) $ 50,124 $ 47,205 $ 37,245 ============================================================================ Earnings (loss) per common share (Note B) $ (.01) $ .03 $ .02 $ .02 ========================================================================== Weighted average number of shares outstanding (Note B) 2,015,157 2,004,046 2,037,379 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS ____________________________________________________________________________ March 31, June 30, 1997 1996 ____________________________________________________________________________ Current Assets Cash and cash equivalents $ 477,587 $ 411,924 Accounts receivable, net 474,002 716,103 Inventories 1,449,008 1,413,379 Prepaid expenses and other 78,526 14,254 Deferred income taxes 31,000 31,000 ____________________________________________________________________________ Total current assets 2,510,123 2,586,660 Property and Equipment - at cost Machinery and equipment 510,727 470,433 Furniture and fixtures 89,647 88,414 Leasehold improvements 8,765 8,765 ____________________________________________________________________________ 609,139 567,612 Less accumulated depreciation 502,146 477,054 ____________________________________________________________________________ 106,993 90,558 Other Assets Goodwill, net of accumulated amortization of $391,801 on March 31, 1997 and $369,438 on June 30, 1996 800,899 823,262 Other, net 10,791 21,562 ____________________________________________________________________________ 811,690 844,824 - --------------------------------------------------------------------------- $3,428,806 $3,522,042 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________________________________________________ March 31, June 30, 1997 1996 ____________________________________________________________________________ Current Liabilities Accounts payable $ 101,300 $ 209,968 Accrued liabilities 173,795 174,204 Income taxes payable 18,866 _____________________________________________________________________________ Total current liabilities 275,095 403,038 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, 2,080,296 shares issued, 2,054,046 shares outstanding 52,007 50,757 Additional paid-in capital 2,152,423 2,107,173 Retained earnings 1,004,031 1,015,824 _____________________________________________________________________________ 3,208,461 3,173,754 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) _____________________________________________________________________________ 3,139,711 3,105,004 _____________________________________________________________________________ $3,428,806 $3,522,042 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) ____________________________________________________________________________ For the nine months ended March 31, 1997 1996 ____________________________________________________________________________ Cash flows from operating activities Net earnings (loss) $ (11,793) $ 50,124 Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 48,441 54,066 (Increase) decrease in operating assets Accounts receivable 242,101 (20,950) Inventories (35,629) 2,077 Prepaid expenses and other (54,487) (18,312) Increase (decrease) in operating liabilities Accounts payable (108,668) (22,452) Accrued liabilities (409) 20,851 Income taxes payable (18,866) (13,542) ____________________________________________________________________________ Net cash provided by operating activities 60,690 51,862 ____________________________________________________________________________ Cash flows from investing activities Capital expenditures (41,527) (15,990) ____________________________________________________________________________ Net cash used in investing activities (41,527) (15,990) ____________________________________________________________________________ Cash flows from financing activities Proceeds from sale of stock 46,500 - - --------------------------------------------------------------------------- Net cash provided by financing activities 46,500 - - -------------------------------------------------------------------------- Net increase in cash and cash equivalents 65,663 35,872 Cash and cash equivalents at beginning of year 411,924 297,157 ____________________________________________________________________________ Cash and cash equivalents at end of period $ 477,587 $ 333,029 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Income taxes $ 60,627 $ 46,942 [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 nine month period ended March 31, 1997, cash increased by $65,663. Of the cash generated by operating activities ($60,690), $48,441 was derived from non-cash expense for depreciation and amortization and $242,101 was generated by the collection of accounts receivable. These sources were used principally to fund the loss of $11,793, increases in inventories ($35,629) and prepaid expenses ($54,487) and decreases in current liabilities ($127,943) and income taxes payable ($18,866). Investing activities used $41,527 to purchase capital assets, while financing activities provided $46,500 from the exercise of a stock option to purchase 50,000 shares of common stock. 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 nine and three month period ended March 31, 1997 decreased by $201,571 (6.7%) and $3,881 (.4%) respectively, from the comparable periods of fiscal 1996 mainly due to the shipment of a substantial contract for CSU/DSU data devices. Due principally to the shipment of the CSU/DSU contract during fiscal 1996, sales of customer premise equipment decreased by $324,340 (76.7%) and $89,980 (73.5%) for the nine and three month periods, respectively, from the comparable periods of fiscal 1996. Sales of telephone test equipment increased by $190,419 (7.9%) for the nine month period and $103,730 (11.6%) for the three month period of fiscal 1997 when compared to the same periods of fiscal 1996. The increase in test equipment sales for both periods was due to the marketing of the Company's newer products to a wider telecommunications market. Sales of spare parts, repairs and miscellaneous products decreased by $63,883 (36.1%) and $15,991 (31.0%) for the nine 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 37.6% for the nine month period of fiscal 1997 from 37.8% for the same period of fiscal 1996. However, for the third quarter of fiscal 1997, gross profit margin improved to 41.1% from 38.2% in fiscal 1996. The change during the nine the period related primarily to the reduction in sales for the period which affected the ability of the Company to absorb its fixed expenses. The improvement in the third quarter was principally due to a decrease of 11.0% in overhead expenses, primarily a reduction in indirect labor and related payroll costs and taxes. Selling, general and administrative expenses increased by $41,576 (4.8%) and $28,831 (10.3%) for the nine and three month periods, respectively, in fiscal 1997 from fiscal 1996. The increase in both periods was mainly due to increases in selling expense 23.4% for the nine month period and 51.7% for the three month period which offset decreases in general and administrative expenses of 5.8% and 11.7% for the nine and three month periods. These increases were mainly attributed to increases in advertising and staff in the sales group offsetting decreases in rent and salaries in administrative expenses as a result of closing the New York office in January, 1997. Research and development expenses decreased by $26,031 (12.4%) and $16,453 (24.0%) for the nine and three month periods, respectively, in fiscal 1997 from the comparable fiscal 1996 periods due to decreases in staff. Interest and other income decreased by $4,847 (52.6%) and $485 (22.3%) for the nine 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 2. Changes in Securities On January 22, 1997, Venerando J. Indelicato, President and Chief Executive Officer of the Company, exercised an option to purchase 50,000 shares of the Company's Common Stock at an exercise price of $.93, 110% of the market value of the Company's Common Stock on January 24, 1992, the date of grant. The option had been granted under the Company's 1991 Employee Stock Option Plan. No underwriters were involved in the issuance. Mr.Indelicato agreed to aquire the above for investment and not for distribution. The Company believes that the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(2) of that Act is applicable to such issuance. Item 6. 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, 1997. 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 5, 1997 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule