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, 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 February 11, 1998 Metro Tel Corp. Statement of Operations (Unaudited, Note A) For the six months For the three months ended December 31, ended December 31, 1997 1996 1997 1996 ____________________________________________________________________________ Net sales $2,019,042 $1,752,930 $ 972,414 $ 736,680 Cost of goods sold 1,249,778 1,131,990 616,372 505,376 ____________________________________________________________________________ Gross profit 769,264 620,940 356,042 231,304 ____________________________________________________________________________ Selling, general, and administrative expenses 630,137 589,913 318,814 309,528 Research and development 112,189 132,095 56,060 63,492 Interest and other income (5,355) (2,670) (2,570) (1,298) ____________________________________________________________________________ 736,971 719,338 372,304 371,722 ____________________________________________________________________________ Earnings (loss) before provision (credit) for income taxes 32,293 (98,398) (16,262) (140,418) Provision (credit) for income taxes 12,900 (39,400) (6,500) (56,200) ____________________________________________________________________________ Net earnings (loss) $ 19,393 $ (58,998) $ (9,762) $ (84,218) ============================================================================ Earnings (loss) per common share (Note B) $ .01 $ (.03) $ - $ (.04) ========================================================================== Weighted average number of shares outstanding (Note B) 2,054,046 2,004,046 2,054,046 2,004,046 ============================================================================ Metro Tel Corp. Balance Sheets (Unaudited, Note A) ASSETS ____________________________________________________________________________ December 31, June 30, 1997 1997 ____________________________________________________________________________ Current Assets Cash and cash equivalents $ 410,840 $ 498,615 Accounts receivable, net 484,614 550,457 Inventories 1,615,356 1,516,339 Prepaid expenses and other 40,960 43,696 Deferred income taxes 27,000 27,000 ____________________________________________________________________________ Total current assets 2,578,770 2,636,107 Property and equipment - at cost Machinery and equipment 510,737 486,683 Furniture and fixtures 76,927 76,883 Leasehold improvements 8,765 8,765 ____________________________________________________________________________ 596,429 572,331 Less accumulated depreciation 477,563 457,671 ____________________________________________________________________________ 118,866 114,660 Other assets Goodwill, net of accumulated amortization of $414,164 on December 31, 1997 and $399,256 on June 30, 1997 778,536 793,444 Other, net 9,805 10,465 ____________________________________________________________________________ 788,341 803,909 - --------------------------------------------------------------------------- $3,485,977 $3,554,676 ========================================================================== Metro Tel Corp. Balance Sheets (Unaudited, Note A) LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________________________________________________ December 31, June 30, 1997 1997 ____________________________________________________________________________ Current Liabilities Accounts payable $ 121,986 $ 212,171 Accrued liabilities 173,973 171,880 _____________________________________________________________________________ Total current liabilities 295,959 384,051 Defrred 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 1,047,338 1,027,945 _____________________________________________________________________________ 3,251,768 3,232,375 Less 26,250 shares of treasury stock - at cost (68,750) (68,750) _____________________________________________________________________________ 3,183,018 3,163,625 _____________________________________________________________________________ $3,485,977 $3,554,676 ============================================================================= Metro Tel Corp. Statements of Cash Flows (Unaudited, Note A) ____________________________________________________________________________ For the six months ended December 31, 1997 1996 ____________________________________________________________________________ Cash flows from operating activities Net earnings (loss) $ 19,393 $ (58,998) Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 35,460 32,292 (Increase) decrease in operating assets Accounts receivable 65,843 240,204 Inventories (99,017) (120,048) Prepaid expenses and other 2,736 (103,426) Increase (decrease) in operating liabilities Accounts payable (90,185) (88,580) Accrued liabilities 2,093 (40,365) Income taxes payable - (18,866) ____________________________________________________________________________ Net cash (used) by operating activities (63,677) (157,787) ____________________________________________________________________________ Cash flows from investing activities Capital expenditures (24,098) (34,339) ____________________________________________________________________________ Net (decrease) in cash and cash equivalents (87,775) (192,126) Cash and cash equivalents at beginning of year 498,615 411,924 ____________________________________________________________________________ Cash and cash equivalents at end of period $ 410,840 $ 219,787 ============================================================================ Supplement disclosures of cash flow information Cash paid during the period for Income taxes $ - $ 60,627 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, 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 December 31, 1997, cash decreased by $87,775. The decrease resulted from $63,677 used by operating activities and $24,098 used in investing activities to purchase capital assets. Cash generated for operations by profits ($19,393), depreciation ($35,460) and reductions in accounts receivables ($65,843) and prepaid expenses ($2,736) were used to support increases in inventory ($99,017), accrued liabilities ($2,093) and reduce accounts payable ($90,185). The Company believes that the cash it expects to generate from operations will be sufficient to meet operational needs in the forseeable future. Results of Operations Net sales for the three and six month periods ended December 31, 1997 increased by $235,734 (32.0%) and $266,112 (13.2%), respectively, from the comparable periods of a year ago. The increase in sales for both fiscal 1998 reported periods was mainly due to increases in foreign sales of telephone test equipment and an increase in new test equipment sales to Regional Bell Operating Companies. Prices remained constant, however the Company intends to implement selected price increases in the third quarter of fiscal 1998. Sales of telephone test equipment increased by $239,398 (35.7%) for the three month period and $283,808 (17.6%) for the six month period ended December 31, 1997 over to the same periods of a year ago. Sales of customer premise equipment for the second quarter and the first half of fiscal 1998 decreased by $12,425 (42.8%) and $29,447 (44.7%), respectively, from the same perods of fiscal 1997. The reduction in both periods was mainly due to a reduction in sales of dialers. Sales of spare parts and repairs increased for, the three month and six month periods by $8,761 (23.8%) and $11,751 (15.3%), respectively, from the three and six month periods of fiscal 1997. The Company's gross profit margin, expressed as a percentage of sales, improved to 38.1% for the six month period of fiscal 1998 from 35.4% for the same period of fiscal 1997. Gross profit margin for the second quarter of fiscal 1998 increased to 36.6% from 31.3% for the same period of fiscal 1997. The improvement for both periods was mainly due to the increase in sales which enabled the Company to better absorb its fixed expenses. Selling, general and administrative expenses increased by $40,224 (6.8%) and $9,286 (3.0%) for the three and six month periods, respectively, in fiscal 1998 over the comparable fiscal 1997 periods. The increases were mainly due to increased selling expenses which offset reductions in administrative costs. For the six month period selling expenses increased by 29.0% mainly due to increases in advertising, commissions, royalties and salaries. These expenses were partially offset by a reduction in administrative expenses (8.3)%. For the three month period sales expenses increased by 8.7% due to increases in commissions, royalties and salaries, partially offset by a reduction in administrative expenses (1.8%). Research and development expenses decreased by $19,906 (15.1%) and $7,432 (11.7%) for the six and three month periods, respectively, in fiscal 1998 from the comparable fiscal 1997 periods due to decreases in payroll and payroll expenses associated with staff changes. Interest and other income increased by $2,685 (100.6%) and $1,272 (98.0%) for the six and three month periods in fiscal 1998 from the same periods in fiscal 1997 due to increased cash balances. 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, 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: February 11, 1998 By: Venerando J. Indelicato President, Treasurer and Principal Financial and Chief Accounting Officer EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule