-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFkpJJx1iCRSKtExiCennGewEl/N2euRQPC2C497gV9A6RYOeu430KC1bp3IPs+8 UdwQU4S5brvZGRie8jNXIg== 0000889812-96-001145.txt : 19960928 0000889812-96-001145.hdr.sgml : 19960928 ACCESSION NUMBER: 0000889812-96-001145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960820 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROTEL INTERNATIONAL INC CENTRAL INDEX KEY: 0000854852 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770226211 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10346 FILM NUMBER: 96618299 BUSINESS ADDRESS: STREET 1: 2040 FORTUNE DR STREET 2: STE 102 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084358520 MAIL ADDRESS: STREET 1: 2040 FORTUNE DRIVE STREET 2: STE 102 CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: CXR CORP DATE OF NAME CHANGE: 19920703 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 1996 or ( ) Transition report pursuant to Section l3 or l5(d) of the Securities Exchange Act of l934 For the transition period N/A Commission file Number 1-10346 MICROTEL INTERNATIONAL, INC. (formerly CXR Corporation) (Exact name of registrant as specified in its charter) Delaware 77-0226211 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2040 Fortune Dr. Suite 102 San Jose, California 95l3l (Address of principal executive offices) (Zip Code) Registrant's telephone number ------ (408) 435-8520 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.0033 par value American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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_________ As of June 30, l996 there were 13,964,380 shares of Common Stock outstanding. MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q Page ---- Part I - FINANCIAL INFORMATION Item l. Financial Statements Consolidated Condensed Balance Sheets June 30, l996 and December 31, l995 3 Consolidated Condensed Statements of Operations Three and Six Months Ended June 30, l996 and l995 4 Consolidated Condensed Statements of Cash Flows Three and Six Months Ended June 30, l996 and l995 5 Notes to Consolidated Condensed Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 2 MicroTel International, Inc. Consolidated Condensed Balance Sheets (unaudited) June 30, Dec 31, 1996 1995 ----- ----- (in thousands) ASSETS Current assets: Cash and cash equivalents $ 77 $ 432 Investments in marketable securities 113 152 Accounts receivable 2947 3582 Inventories Finished goods 1734 1774 Work in process 907 960 Parts 1233 1414 ----- ----- 3874 4148 Other current assets 430 283 ----- ----- Total current assets 7441 8597 Plant and equipment-net 737 866 Capitalized software 1440 1052 Foreign tax receivable 761 790 Other assets 19 20 ----- ----- $10398 $11325 ===== ===== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 1082 $ 769 Current portion long-term debt 194 252 Accounts payable 2035 2184 Accrued payroll and related expenses 997 1083 Other accrued liabilities 743 666 Deferred income 175 350 ----- ----- Total current liabilities 5226 5294 Long-term debt 243 227 Deferred compensation liability 768 803 Deferred rent 21 45 ----- ----- Total liabillties 6258 6369 Stockholders' equity: Common stock 46 45 Additional paid-in capital 22426 22293 Accumulated deficit (17586) (16774) Stockholder's note receivable (1337) (1337) Deferred compensation (64) (88) Cumulative translation adjustments 655 817 ----- ----- Stockholder's equity 4140 4956 ----- ----- $10398 $11325 ===== ===== See notes to consolidated financial statements 3 MicroTel International, Inc. Consolidated Condensed Statements of Operations (in thousands except per share amounts) (Unaudited) For the three For the six months ended months ended June 30, June 30, l996 l995 l996 l995 -------- -------- -------- -------- Sales $ 3,960 $ 4,456 $ 8,094 $ 10,116 Cost and expenses: Cost of sales 2,410 2,818 4,937 6,137 Engineering and product development 244 284 787 719 Selling and marketing 1,003 897 2,041 1,999 Administration 504 421 1,297 1,093 Other expense/(income)-net (104) (34) (156) 10 -------- -------- -------- -------- 4,057 4,386 8,906 9,958 -------- -------- -------- -------- Income (loss) before income taxes $ (97) $ 70 $ (812) $ 158 Income tax expense -- -- -- -- -------- -------- -------- -------- Net income (loss) $ (97) $ 70 $ (812) $ 158 ======== ======== ======== ======== Net income (loss) per common share $ (.01) $ 0.0l $ (.06) $ 0.01 ======== ======== ======== ======== Weighted average number of shares used in calculating net income (loss) per share 13,911 13,044 13,864 13,042 ======== ======== ======== ======== See notes to consolidated condensed financial statements. 4 MicroTel International, Inc. Consolidated Condensed Statements of Cash Flows (Unaudited) For the six months Ended June 30, l996 l995 ------- ------- Cash flows from operating activities: Net income (loss) $ (812) $ 158 Reconciliation to cash provided by (used in) operations: Depreciation and amortization 158 145 Amortization of intangible assets 5 146 Changes in assets and liabilities: Accounts receivable 634 1,739 Inventories 274 (502) Other assets (118) 5 Accounts payable (149) (944) Other accrued liabilities (55) (219) Other noncurrent liabilities (232) (ll7) ------- ------- Cash provided by (used in) operations (295) 411 ------- ------- Cash flows from investing activities: Additions to plant and equipment net of retirements (54) (131) Capitalized software (424) (510) Marketabled securities 39 ------- ------- Cash used in investment activities (439) (641) ------- ------- Cash flow from financing activities: Short-term borrowing 323 (470) Long-term debt: Additions 29 108 Repayments (55) Common stock transactions, net 204 6 ------- ------- Cash provided by (used in) financing activities 501 (356) ------- ------- Effect of exchange rate changes on cash (122) 2l8 ------- ------- Net decrease in cash (355) (368) Cash and cash equivalents at beginning of period 432 947 ------- ------- Cash and cash equivalents at end of period $ 77 $ 579 ======= ======= See notes to consolidated condensed financial statements 5 MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited consolidated condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for the periods are not necessarily indicative of the results to be expected for the full fiscal year. It is suggested that these interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10K for the year ended December 31, l995. The currency of the country in which the foreign subsidiary is located is considered its functional currency. Cumulative translation adjustments result from converting from the functional currency to U.S. dollars. 2. Borrowing Arrangements The Company's U.S. subsidiary, CXR Telcom Corporation, renegotiated its bank credit facility, which matured on June 3, l996. Under CXR Telcom's prior revolving line of credit, borrowings were available to the Company based on an advance rate of 75% of eligible receivables plus an additional $200,000 maximum advance against inventories. The line of credit carried a maximum borrowing limit of $l,000,000 and bore interest at prime plus 4%. The replacement factoring line of credit with the same bank provides borrowings based on an advance rate of 85% of eligible receivables with no maximum cap. The line bears interest at prime plus 2% (l0.25% currently) and an administrative fee of l% per month is charged on the average factored invoiced balance for invoice processing. 3. Listing Matters The American Stock Exchange (AMEX) advised the Company on June 14, 1996 that it had determined to delist the Company because it had fallen below the AMEX's financial guidelines for continued listing. The Company has appealed the AMEX's decision to delist its shares, as management believes that the Company's future results of operations will be adequate to meet AMEX guidelines within a few quarters and that AMEX then should allow the continued listing of the Company's shares on a conditional basis. The Company's shares will continue to trade on the AMEX during the appeal process, however, there can be no assurances as to the Company's success in the appeal and therefore, the continued listing of its shares on the AMEX thereafter. To insure the continued listing of the Company's shares in the 6 event that the Company's appeal to the AMEX is unsuccessful, the Company applied for listing on the NASDAQ Stock Market on June 17, 1996. 4. Stock Subscription Receivable In June, l996, Hardee Capital Partners, L.P. (Hardee Capital) defaulted on its promissory note to the Company. The promissory note by Hardee Capital in the principal amount of $1,444,445 was made to Elk International Corporation Limited (Elk), the Company's principal shareholder, and assigned to the Company on November 8, 1994 as payment of a stock subscription by Elk to acquire shares of common stock of the Company. The due date of the promissory note, which was originally due and payable on December 31, 1995, was extended to December 15, 1996 by Hardee Capitals agreement to pay $358,300 to the Company. Hardee Capital did not pay $8,300 of such amount as agreed and consequently, the note is in default under its terms and conditions, giving the Company the immediate right to vote the collateral shares of Kleer-Vu Industries, Inc. (Kleer-Vu) (641,944 shares of common stock), as well as foreclosure rights, and the right to proceed against the personal guarantee of David W. Hardee, General Partner of Hardee Capital and Co-Chairman and Chief Executive Officer of Kleer-Vu (Hardee). Elk has the right to make alternative cash payment to the Company for the stock subscription through December 15, 1996, and to receive a corresponding assignment of proceeds from the promissory note when collected. Elk has been making monthly payments against the stock subscription, which payments aggregated $160,000 as of June 30, l996. A lawsuit was filed in July, l996 by the Company against Hardee Capital and Hardee, as guarantor, for collection of the note plus attorneys' fees. Settlement discussions have been initiated by Hardee Capital and Hardee and are ongoing. 5. Subsequent Events Litigation In September, l994 Raymond Jacobson, a former director of the Company, brought an action against the Company in the California Superior Court, Santa Clara County, alleging that the Company had breached its contract to pay Mr. Jacobson $3,495 bi-weekly under a deferred compensation agreement, by discontinuing payment in August l994. Mr. Jacobson was claiming damages of approximately $l,200,000 which he purported to be the present value of all payment to be made under the agreement. In June l995 the Company paid Mr. Jacobson all amounts past due under the contract plus interest and reinstated the bi-weekly payments. 7 On July 23, l996, the Company reached an agreement in principle to settle this litigation. The definitive agreement is currently being prepared. The settlement provides for a reduction of 35% in the stream of contractual future payments under the deferred compensation agreement and further provides for a five-year consulting arrangement with Mr. Jacobson. Consulting fees thereunder are to be paid in whole or in part with common stock of the Company, depending upon the price of the stock during the term of the arrangement. The Company will recognize a nominal gain on the transaction in the third quarter of l996. Reverse Stock Split On August 15, l996, the shareholders of the Company ratified a one-for-five reverse stock split effective for holders of record on August 29, l996. Giving retroactive effect to the reverse stock split, the comparative earnings (loss) per share for the three and six months ended June 30, l996 would have been $(.03) and $(.29) per share, respectively, versus $.03 and $.06 per share, respectively, for the same periods in the prior year. 8 MICROTEL INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Results of Operations Consolidated sales and gross margins for the quarter and six months' ended June 30, 1996 were comprised of the following results for the Company's U.S. operating subsidiary, CXR Telcom, and its French operating subsidiary, CXR S.A. (in thousands): Qtr Ended June 30, 6 Months Ended June 30, 1996 l995 l996 l995 ---- ---- ---- ---- Sales CXR Telcom $2,040 $2,014 $3,836 $ 4,374 CXR S.A. 1,920 2,442 4,258 5,742 ------ ------ ------ ------- Total $3,960 $4,456 $8,094 $10,116 ====== ====== ====== ======= Gross Margins CXR Telcom $ 854 $ 729 $1,499 $1,701 CXR S.A. 696 909 1,658 2,278 ------ ------ ------ ------- Total $l,550 $1,638 $3,157 $3,979 ====== ====== ====== ======= Second Quarter Consolidated sales for the three months ended June 30, l996 declined by $496,000 or 11% as compared to the second quarter of l995. This consolidated decline was substantially due to reduced sales for CXR S.A., which resulted from very strong price competition in the European modem market, a trend which is expected to continue, a decline in sales to its major customer, France Telecom, which is undergoing a reorganization to facilitate its privatization and a generally weak French economy. Consolidated gross margins increased from 37% in l995 to 39% in l996. CXR Telcom's margins improved to 42% in l996 from 36% in l995 due to a product mix shift to higher margin test instruments versus lower margin transmission products. CXR S.A.'s margins slipped to 36% in l996 from 37% in l995, even considering that second quarter l996 margins benefited from a redeployment of certain direct customer service personnel to selling and marketing functions (see additional discussion below). Net engineering and product development costs decreased by $40,000 in the second quarter of l996 from l995 levels due to a temporary reduction in engineering staff. Gross engineering and product development costs, prior to capitalization of software development costs, were $559,000 and $624,000 for the three months ended June 30, l996 and l995, respectively. Selling and marketing costs increased in relation to sales from 20% 9 in l995 to 25% in l996 due principally to a redeployment of (and consequential reclassification of costs of) certain personnel whose job focus has shifted from product service to product support in connection with changes in CXR S.A.'s business strategy of increasing its O.E.M. sales to replace declining modem revenues. Administrative expenses increased by $83,000 due principally to continued training costs incurred by CXR Telcom to achieve and maintain its ISO 9001 certification. The final training costs were incurred in the second quarter of l996. Other (income) expense-net improved by $70,000 due principally to the prorata recognition over the year of l996 of a $350,000 extension fee received by the Company to extend the due date of a stock subscription note receivable from December 31, 1995 to December 15, 1996. First Half Consolidated sales declined by $2,022,000 or 20% in l996 as compared to the first half of l995, comprised of declines of $538,000 and $l,484,000 for CXR Telcom and CXR S.A., respectively. CXR Telcom's sales of both test instruments and transmission products were impacted by delays in buying by its principal customers, AT&T and the Regional Bell Operating Companies (RBOC's), which resulted from the consolidation and/or restructuring of these companies in the wake of the passage of the l996 Telecommunications Bill. CXR S.A.'s sales decline is a result of the factors described above for the Second Quarter. Consolidated gross margins were comparable between years at 39%, however, as noted above, the margins for CXR S.A. were favorably impacted by a redeployment of certain personnel such that the related costs are now included in selling and marketing costs. Somewhat offsetting this effect was the negative impact in l996 of underabsorption of fixed manufacturing overhead costs due to the decline in production levels accompanying the lower sales volume. Net engineering and product development costs increased by $68,000 in the first half of l996 over l995, principally as a result of greater capitalization of engineering costs in l995 due to the relative mix of product development versus product maintenance efforts during the respective periods. Gross engineering and product development costs, prior to capitalization of software development costs, were $1,214,000 and $1,229,000 for the six months ended June 30, l996 and l995, respectively. Selling and marketing costs increased in relation to sales from 20% in l995 to 25% in l996 due to the factors noted above for the second quarter. Administrative expenses increased by $204,000 again due to the factors noted above for the second quarter. Other (income) expense-net improved by $l46,000 due principally to the prorata recognition over the year of l996 of the $350,000 stock subscription extension fee discussed above. 10 Liquidity and Capital Resources Cash used in operations during the first half of l996 was $295,000 versus operations providing $411,000 in cash flow in the first half of l995. The most significant cause of the fluctuation was the decline in results of operations, with comparative asset and liability changes substantially offsetting each other. As discussed in Note 4 to the Consolidated Condensed Financial Statements, the maker of the promissory note taken in satisfaction of the stock subscription by the Company's principal stockholder, Elk International Corporation Limited ("Elk"), has defaulted on the obligation. It is expected that the stock subscription will be collected by its due date either from the maker of the note or alternatively from payments by Elk. With improvement of results expected, management believes that cash flows from operations and available borrowings will be sufficient to support its working capital needs during l996. Aggressive planned product development efforts may, however, require that the Company raise additional funds through the private placement of its securities. Prospects In the U.S. the impact of the reorganizations of CXR Telcom's customers is a temporary phenomenon, which repositioning is expected to result in significant growth as the changed entities emerge and the long-distance carriers vie for the local loop business of the RBOC's and the RBOC's compete for the long distance services. The final guidance has just recently been released by the Government on the deregulation provided for in the Telecommunications Bill of l996 and CXR Telcom has already received incremental orders in the third quarter related to its customers' expansion of their markets. Additionally, the trend of CXR Telcom's flagship test instrument, the 5200 test set, to become the industry standard continues. Growth in sales of the unit during the second quarter of l996 improved overall domestic gross margins from 36% in the first quarter to 42% in the second quarter. This margin improvement was a primary factor in the improvement to a consolidated net loss of $(97,000) in the second quarter versus a net loss of $(7l5,000) in the first quarter of l996. To overcome the negative factors impacting the Company's French operation, CXR S.A. has implemented various changes to its business strategy. It has introduced a new line of ISDN Terminal Adapters to its transmission product line, has begun a new business unit which provides networking solutions to the business user utilizing O.E.M. products, and has refocused its marketing to expand its markets outside of France. While currently selling O.E.M. products in its test instrument business unit, CXR S.A. is jointly developing the next generation of CXR Telcom's 5200 test set with its sister company and will introduce a European version in l997. 11 The new strategies are beginning to yield results, with the new networking business unit showing l5% growth in the second quarter of l996 over that of the first quarter. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings In September, l994 Raymond Jacobson, a former director of the Company, brought an action against the Company in the California Superior Court, Santa Clara County, alleging that the Company has breached its contract to pay Mr. Jacobson $3,495 bi-weekly under a deferred compensation agreement, by discontinuing payment in August l994. Mr. Jacobson was claiming damages of approximately $l,200,000 which he purported to be the present value of all payment to be made under the agreement. In June l995 the Company paid Mr. Jacobson all amounts past due under the contract plus interest and reinstated the bi-weekly payments. On July 23, l996, the Company reached an agreement in principle to settle this litigation. The definitive agreement is currently being prepared. The settlement provides for a reduction of 35% in the stream of contractual future payments under the deferred compensation agreement and further provides for a five-year consulting arrangement with Mr. Jacobson. The consulting fees thereunder are to be paid in whole or in part with common stock of the Company, depending upon the price of the stock during the term of the arrangement. The Company will recognize a nominal gain on the transaction in the third quarter of l996. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended June 30, l996. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MicroTel International, Inc. /s/ Barry E. Reifler August 20, 1996 -------------------------------------- Barry E. Reifler, CFO (Principal Accounting and Financial Officer) 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information from the unaudited financial statements of MicroTel International, Inc. for the quarter ended June 30, l996 and is qualified in its entirety by reference to such financial statements. 1 6-MOS DEC-31-1996 JUN-30-1996 77,000 113,000 3,264,000 317,000 3,874,000 7,441,000 2,962,000 2,225,000 10,398,000 5,226,000 0 0 0 46,000 4,094,000 10,398,000 8,094,000 8,094,000 4,937,000 9,062,000 156,000 0 (79,000) (812,000) 0 (812,000) 0 0 0 (812,000) (.06) (.06)
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