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, 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 November 12, 1997 =========================================================================== Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the three months ended September 30, 1997 1996 Net Sales $ 1,046,628 $1,016,250 Cost of goods sold 633,406 626,614 ____________________________________________________________________________ Gross Profit 413,222 389,636 ____________________________________________________________________________ Selling, general and administrative expenses 311,323 280,385 Research & development 56,129 68,603 Interest and other income (2,785) (1,372) ____________________________________________________________________________ 364,667 347,616 Earnings (loss) before provision for income taxes 48,555 42,020 Provision (credit) for income taxes 19,400 16,800 ____________________________________________________________________________ Net Earnings $ 29,155 $ 25,220 ============================================================================ Earnings per common share (Note B) $ .01 $ .01 ============================================================================ Weighted average number of shares outstanding (Note B) 2,054,046 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS September 30, June 30, 1997 1997 Current Assets Cash and cash equivalents $ 383,930 $ 498,615 Accounts receivable, net 622,058 550,457 Inventories 1,607,157 1,516,339 Prepaid expenses and other 52,776 43,696 Deferred income taxes 27,000 27,000 ____________________________________________________________________________ Total current assets 2,692,921 2,636,107 Property and equipment - at cost Machinery and equipment 500,237 486,683 Furniture and fixtures 76,927 76,883 Leasehold Improvements 8,765 8,765 __________________________________________________________________________ 585,929 572,331 Less accumulated depreciation 467,667 457,671 __________________________________________________________________________ 118,262 114,660 Other assets Goodwill, net of accumulated amortization of $406,709 on September 30, 1997 and $399,255 on June 30, 1997 785,990 793,444 Other, net 10,134 10,465 ____________________________________________________________________________ 796,124 803,909 $3,607,307 $3,554,676 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, June 30, 1997 1997 Current Liabilities Accounts payable $ 160,483 $ 212,171 Accrued liabilities 247,044 171,880 _____________________________________________________________________________ Total current liabilities 407,527 384,051 Deferred Income Taxes 7,000 7,000 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 52,007 Additional paid-in capital 2,152,423 2,152,423 Retained earnings 1,057,100 1,027,945 _____________________________________________________________________________ 3,261,530 3,232,375 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) _____________________________________________________________________________ 3,192,780 3,163,625 _____________________________________________________________________________ $3,607,307 $3,554,676 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) For the three months ended September 30, 1997 1996 Cash flows from operating activities: Net earnings $ 29,155 $ 25,220 Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 17,781 16,147 (Increase) decrease in operating assets: Accounts receivable (71,601) 214,740 Inventories (90,818) (139,816) Prepaid expenses and other (9,080) (30,390) Increase (decrease) in operating liabilities: Accounts payable (51,688) (50,625) Accrued liabilities 75,164 (56,873) Income taxes payable (14,127) ____________________________________________________________________________ Net cash (used) provided by operating activities (101,087) (35,724) ____________________________________________________________________________ Cash flows from investing activities: Capital expenditures (13,598) (8,226) ____________________________________________________________________________ Net (decrease) in cash and cash equivalents (114,685) (43,950) Cash and cash equivalents at beginning of year 498,615 411,924 ____________________________________________________________________________ Cash and cash equivalents at end of period $ 383,930 $ 367,974 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Income taxes - $ 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, 1997. 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, 1997, cash decreased by $114,685. The decrease included $101,087 used by operating activities and $13,598 used to purchase capital assets. Cash generated for operations by profits ($29,155) and depreciation ($17,781) were used to support changes in operating assets and liabilities, primarily increases in inventories ($90,818), accounts receivable ($71,601) and accrued expenses ($75,164), and a decrease in accounts payable ($51,688). The Company believes that the cash which it expects to generate from operations and its existing cash will be sufficient to meet operational needs. Results of Operations Net sales increased by $30,378 (3.0%) in the first quarter of fiscal 1998 from the same period in fiscal 1997. The increase in sales during the first quarter was mainly due to increases in foreign sales of telephone test equipment and an increase in new test equipment sales to the Regional Bell Operating Companies (RBOCs). Prices remained constant during the period. Sales of telephone test equipment increased by $44,410 (4.7%) in the first quarter of fiscal 1998 from the same period in fiscal 1997, with increases in sales of installers's test sets (15.2%) being offset partially by decreases in sales of outside plant test sets (2.6%) and transmission test equipment (19.8%). Sales of customer premise equipment decreased by $17,022 (46.2%) during the first three months of fiscal 1998 when compared to the same period of fiscal 1997, mainly due to a reduction in the sale of dialers. Sales of miscellaneous products, parts and repairs increased by $2,990 (7.5%). The Company's gross profit margin, expressed as a percentage of sales, improved to 39.5% for the first quarter of fiscal 1998 from 38.3% for the same period of fiscal 1997. The improvement was mainly due to the increased level of sales which permitted the Company to better absorb its fixed expenses and to a slight reduction in labor costs. Selling, general and administrative expenses increased during the first quarter of fiscal 1998 by $30,938 (11.0%) and as a percentage of sales to 29.7% from 27.6% during the first quarter of fiscal 1997. The increase, which was mainly in selling expenses (58.4%), consisted of increases in advertising (172.1%), royalties and commissions (69.3%) and payroll (71.2%). These increases offset decreases in general and adminstrative expenses (14.2%) due principally to the closing of the Company's Jericho, NY office in January 1997. Research and development expenses decreased by $10,727 (15.6%) in the first quarter of fiscal 1998 compared to the same period of fiscal 1997 mainly due to payroll reductions associated with staff changes. PART 11 - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's 1997 Annual Meeting of Stockholders held on November 5, 1997, stockholders re-elected the Company's existing Board of Directors by the following votes: For Withheld Michael Epstein 1,454,098 6,763 Lloyd Frank 1,454,169 6,692 Venerando J. Indelicato 1,455,923 4,938 Michael Michaelson 1,456,810 4,051 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 September 30, 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: November 12, 1997 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule