-----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, CWv03nCXFO4SP8jTqCcYtWWYv0LKR65zk6hFdiQs5LXsUupi3HnaR39p0ZV8dkDC WSSAfD0J8m9y/42zAnXYEw== 0001047469-99-032383.txt : 19990817 0001047469-99-032383.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032383 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10346 FILM NUMBER: 99692108 BUSINESS ADDRESS: STREET 1: 4290 E BRICKELL ST STREET 2: STE 102 CITY: ONTARIO STATE: CA ZIP: 91761-1511 BUSINESS PHONE: 9094564321 MAIL ADDRESS: STREET 1: 4290 E BRICKELL STREET STREET 2: STE 102 CITY: ONTARIO STATE: CA ZIP: 91761-1511 FORMER COMPANY: FORMER CONFORMED NAME: CXR CORP DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q 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, 1999 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. - ------------------------------------------------------ (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.) 4290 E. Brickell Street, Ontario California 91761 - ------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number (909) 456-4321 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ----------------------------- --------------------- Common Stock $.0033 par value None - -------------------------------------------------------------------------------- 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 August 13, 1999, there were 16,987,315 shares of common stock outstanding. MICROTEL INTERNATIONAL, INC. INDEX TO FORM 10-Q PAGE ---- PART I - FINANCIAL INFORMATION Item l. Financial Statements Consolidated Condensed Balance Sheets June 30, 1999 and December 31, 1998 3 Consolidated Condensed Statements of Operations Three and Six Months Ended June 30, 1999 and l998 4 Consolidated Condensed Statements of Cash Flows Six Months Ended June 30, 1999 and l998 5 Notes to Consolidated Condensed Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Part II - OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities 23 Item 3. Defaults upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 -2- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
JUNE 30, DECEMBER 31, ASSETS 1999 1998 - ------ -------- ------------ Cash and cash equivalents $ 122 $ 572 Accounts receivable, net 5,946 7,337 Current portion of notes receivable, net 137 291 Inventories 5,441 6,426 Other current assets 729 926 ------- ------- Total current assets 12,375 15,552 Property, plant and equipment-net 1,474 1,939 Goodwill, net 1,604 1,701 Notes receivable, net, less current portion -- 533 Investment in unconsolidated affiliates 1,911 150 Other assets 1,175 1,367 ------- ------- $18,539 $21,242 ------- ------- ------- ------- LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Notes payable $ 2,734 $ 3,379 Current portion of long-term debt 497 805 Accounts payable 3,353 4,269 Accrued expenses 3,039 3,312 ------- ------- Total current liabilities 9,623 11,765 Long-term debt, less current portion 1,035 1,430 Other liabilities 855 954 Minority interest 119 95 ------- ------- Total liabilities 11,632 14,244 Convertible redeemable preferred stock 810 1,516 Stockholders' equity: Common stock 56 42 Additional paid-in capital 23,422 20,463 Accumulated deficit (17,056) (15,122) Accumulated comprehensive income (loss) (325) 99 ------- ------- Total stockholders' equity 6,907 5,482 ------- ------- $18,539 $21,242 ------- ------- ------- -------
See accompanying notes to consolidated condensed financial statements. -3- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ----------- ----------- ----------- ---------- (in thousands, except per share amounts) Net sales $ 6,801 $ 8,971 $ 14,311 $ 18,713 Cost of sales 4,411 5,555 9,314 13,061 -------- -------- --------- --------- Gross profit 2,390 3,416 4,997 5,652 Operating expenses: Selling, general and administrative 2,890 2,796 6,607 5,914 Engineering and product development 477 574 1,035 1,145 -------- -------- --------- --------- Income (loss) from operations (977) 46 (2,645) (1,407) Other expense (income) Interest expense 83 177 202 344 Loss (gain) on sale of subsidiary -- 90 (331) (580) Equity in earnings of unconsolidated affiliates (191) -- (727) (16) Other 40 (25) 87 (27) -------- -------- --------- --------- Loss before income taxes (909) (196) (1,876) (1,128) Income taxes expense 5 22 13 37 -------- -------- --------- --------- Net loss (914) (218) (1,889) (1,165) Other comprehensive loss: Foreign currency translation adjustment (161) (54) (424) (19) -------- -------- --------- --------- Total comprehensive loss $ (1,074) $ (272) $ (2,313) $ (1,184) -------- -------- --------- --------- -------- -------- --------- --------- Basic and diluted loss per share $ (0.06) $ (0.02) $ (0.12) $ (0.10) -------- -------- --------- --------- -------- -------- --------- ---------
See accompanying notes to consolidated condensed financial statements. -4- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 1998 ------------------------------ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,889) $ (1,165) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 240 312 Amortization of intangibles 173 97 Gain on sale of subsidiary (331) (580) Equity in earnings of unconsolidated entities (727) (15) Stock and warrants issued as compensation 1,219 -- Other noncash items 463 (49) Changes in operating assets and liabilities: Accounts receivable 1,576 (515) Inventories 626 6 Other assets 59 (56) Accounts payable and accrued expenses (1,081) (295) --------- --------- Cash provided by (used in) operating activities 328 (2,260) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchases of property, plant and equipment (52) (178) Proceeds from sale of subsidiary 750 1,350 Cash received from note receivable 9 -- --------- --------- Cash provided by investing activities 707 1,172 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments of notes payable (395) 640 Repayments of long-term debt (668) (1,015) Private placement of convertible preferred stock -- 459 Proceeds from sale of common stock 2 -- --------- --------- Cash provided by (used in) financing activities (1,061) 84 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (424) 6 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (450) (998) --------- --------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 572 1,921 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 122 $ 923 --------- --------- --------- ---------
See accompanying notes to consolidated condensed financial statements. -5- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS WHEN USED IN THESE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE," "CONTINUE," "ESTIMATE," "PROJECT," "INTEND," "SHOULD," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, OPERATING COSTS AND FINANCIAL POSITION. SPECIFICALLY, FORWARD-LOOKING STATEMENTS ARE INCLUDED IN NOTES 4 AND 6 HEREOF. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY THAN THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES MicroTel International, Inc. (the "Company") is a holding company for its three wholly owned subsidiaries - CXR Telcom Corporation in Fremont, CA; CXR, S.A. in Paris, France, XIT Corporation in Ontario, CA. and its 37% owned affiliate company Digital Transmission Systems, Inc. located near Atlanta, Georgia. CXR Telcom Corporation, CXR, S.A. and Digital Transmission Systems, Inc. design, manufacture and market electronic telecommunication test instruments, wireless and wireline voice, data and video transmission and networking equipment. XIT Corporation designs, manufactures and markets information technology products, including input and display components, subsystem assemblies and power supplies. The Company operates out of facilities in the U.S., France, England and Japan. The Company organizes itself in three product line sectors- Circuits, Components and Subsystem Assemblies, and Instrumentation and Test Equipment. The sale of substantially all the assets of the Company's HyComp, Inc. subsidiary effective as of March 31, 1999 was a further step in the Company's planned exit of the Circuits business. The Company now has one remaining material circuits business operation. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. -6- MICROTEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The unaudited consolidated condensed financial statements do, however, reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary to state fairly the financial position as of June 30, 1999 and December 31, 1998 and the results of operations and cash flows for the related interim periods ended June 30, 1999 and 1998. However, these results are not necessarily indicative of results for any other interim period or for the year. It is suggested that the accompanying consolidated condensed financial statements be read in conjunction with the Company's Consolidated Financial Statements included in its 1998 Annual Report on Form 10-K. (2) LOSS PER SHARE The following table illustrates the computation of basic and diluted loss per share (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- ------------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- NUMERATOR: Net loss $ (914) $ (218) $ (1,889) $ (1,165) Less: accretion of the excess of the redemption value over the carrying value of redeemable preferred stock (11) -- 45 13 ------- ------- --------- --------- Loss attributable to common stockholders (903) (218) (1,934) (1,178) DENOMINATOR: Weighted average number of common shares outstanding during the period 16,594 11,929 15,685 11,928 ------- ------- --------- --------- Basic and diluted loss per share $ (.06) $ (.02) $ (.12) $ (.10) ------- ------- --------- --------- ------- ------- --------- ---------
The computation of diluted loss per share excludes the effect of incremental common shares attributable to the exercise of outstanding common stock options and warrants because their effect was antidilutive due to losses incurred by the Company or such instruments had exercise prices greater than the average market price of the common shares during the periods presented. -7- (3) INVENTORIES Inventories consist of the following.
June 30, 1999 December 31, 1998 ------------- ----------------- Raw materials $ 2,281,000 $ 2,926,000 Work-in-process 1,758,000 2,375,000 Finished goods 1,402,000 1,125,000 ------------ ------------- $ 5,441,000 $ 6,426,000 ------------ ------------- ------------ -------------
(4) LITIGATION The Company and its subsidiaries are, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible the outcome of such legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not have a material adverse affect on the Company's consolidated financial position, results of operations or cash flows. SCHEINFELD V. MICROTEL INTERNATIONAL, INC. During the second quarter of 1999, two court-directed settlement conferences were conducted with no material outcome. Discovery is substantially completed with only one or two depositions remaining to be taken as of June 30, 1999. The next court-directed settlement conference is presently scheduled for late August, 1999. Although the ultimate outcome of this matter cannot be predicted with certainty, pending actual resolution, management believes the disposition of this matter will not have a material adverse affect on the Company's consolidated financial position, results of operations or cash flows. (5) ACQUISITION AND DISPOSITION OF BUSINESSES On April 19, 1999, the Company completed the sale of substantially all of the assets and liabilities of its HyComp, Inc. subsidiary ("HyComp"), a manufacturer of hybrid, thin film and flip-chip assembly circuits to SatCon Technology Corporation, a public company. The sale was effective as of March 31, 1999 and resulted in a gain of approximately $331,000 which was included in the results of operations for the three months ended March 31, 1999. HyComp received $750,000 in cash and a royalty on certain future sales and was reimbursed approximately $85,000 for certain expenses paid by HyComp between March 31, 1999 and the closing date. The proceeds from this sale were used to partially repay amounts due under certain notes payable and other current debt. -8- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (5) ACQUISITION AND DISPOSITION OF BUSINESSES (CONTINUED) Summarized below are unaudited pro forma financial results of operations of the Company as though the assets and liabilities had been sold at the beginning of 1999. Net sales $ 13,855,000 Net loss $ (1,771,000) Basic and diluted loss per share $ (.12)
(6) NEW ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standards No. 133, ''Accounting for Derivative Financial Instruments and Hedging Activities'' (''SFAS 133'') issued by the FASB is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company does not expect adoption of SFAS 133 to have a material effect on its financial position or results of operations. (7) REPORTABLE SEGMENTS Through June 30, 1999, the Company had three reportable segments: Instrumentation and Test Equipment, and Components and Subsystem Assemblies, and Circuits. The Instrumentation and Test Equipment segment operates principally in the U.S. and European markets and designs, manufactures and distributes telecommunications test instruments and voice and data transmission and networking equipment. The Components and Subsystems Assemblies segment operates in the U.S., European and Asian markets and designs, manufactures and markets information technology products, including input and display components, subsystem assemblies, and power supplies. The Circuits Sector operates principally in the U.S. market and designs, manufactures and markets printed circuits and, through the 1st quarter of 1999, hybrid microelectronic and other circuits (see also Notes 1 and 5 above). The Company has disposed of the majority of its circuits business operations and currently has only one such operation that is material. The Company evaluates performance based upon profit or loss from operations before income taxes exclusive of nonrecurring gains and losses. The Company accounts for intersegment sales at prices negotiated between the individual segments. The Company's reportable segments are comprised of operating entities offering the same or similar products to similar customers. Each segment is managed separately because each business has different customers, and different design, manufacturing and marketing strategies. -9- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (7) REPORTABLE SEGMENTS (CONTINUED) There were no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the amounts disclosed in the Company's consolidated financial statements included in its 1998 Annual Report on Form 10-K. Selected financial data for each of the Company's operating segments is shown below.
SIX MONTHS SIX MONTHS ENDED JUNE 30, 1999 ENDED JUNE 30, 1998 ------------------- ------------------- SALES FROM EXTERNAL CUSTOMERS: Instruments $ 7,357,000 $ 8,529,000 Components 5,540,000 5,653,000 Circuits 1,414,000 4,531,000 ------------ ------------- $ 14,311,000 $ 18,713,000 ------------ ------------- ------------ ------------- INTERSEGMENT SALES: Instruments $ -- $ -- Components 130,000 343,000 Circuits 321,000 346,000 ------------ ------------- $ 451,000 $ 689,000 ------------ ------------- ------------ ------------- SEGMENT PROFITS Instruments $ (971,000) $ (69,000) Components 722,000 494,000 Circuits (892,000) (1,086,000) ------------ ------------- $ (1,141,000) $ (661,000) ------------ ------------- ------------ ------------- SEGMENT ASSETS Instruments $ 8,648,000 $ 10,234,000 Components 5,782,000 7,193,000 Circuits 1,357,000 2,737,000 ------------ ------------- $ 15,787,000 $ 20,164,000 ------------ ------------- ------------ -------------
-10- MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (7) REPORTABLE SEGMENTS (CONTINUED) The following is a reconciliation of the reportable segment loss and assets to the Company's consolidated totals.
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 ------------- ------------- LOSS Total loss for reportable segments $ (1,141,000) $ (661,000) Unallocated amounts: Gain on sale of assets of subsidiary (331,000) (580,000) Equity in earnings of unconsolidated affiliates (727,000) (16,000) Write down of note receivable 466,000 -- Unallocated general corporate expenses 1,327,000 1,063,000 ------------- ------------- Consolidated loss before income taxes $ (1,876,000) $ (1,128,000) ------------- ------------- ------------- ------------- JUNE 30, DECEMBER 31, 1999 1998 ---- ---- ASSETS Total assets for reportable segments $ 15,787,000 $ 20,164,000 Other assets 2,752,000 1,078,000 ------------- ------------- Total consolidated assets $ 18,539,000 $ 21,242,000 ------------- ------------- ------------- -------------
-11- MICROTEL INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WHEN USED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE," "CONTINUE," "ESTIMATE," "PROJECT," "INTEND", "SHOULD," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, OPERATING COSTS AND FINANCIAL POSITION. PROSPECTIVE READERS OR INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY THAN THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED JUNE 30, 1998 NET SALES Consolidated net sales for the second quarter of 1999 decreased by approximately $2,170,000 or 24.2% compared with the same period in 1998. The table below shows the composition of consolidated net sales by business sector.
Three Months Three Months Variance- Ended Ended (increase) Percent Sector June 30, 1999 June 30, 1998 (Decrease) Change ------------- ------------- ---------- ------ Test Equipment $ 3,649 $ 4,339 $ (690) (15.9)% Components 2,622 3,129 (507) (16.2)% Circuits 530 1,503 (973) (64.7)% -------- -------- ------- Total $ 6,801 $ 8,971 $(2,170) (24.2)% -------- -------- ------- -------- -------- -------
The relative percent of net sales by sector between the respective periods experienced the following changes:
Three Months Three Months Ended Ended Sector June 30, 1999 June 30, 1998 ------------- ------------- Test Equipment 53.6% 48.3% Components 38.6% 34.9% Circuits 7.8% 16.8% ----- ----- Total 100.0% 100.0% ----- ----- ----- -----
During the second quarter of 1999, the Test Equipment sector experienced a decrease in net sales in both the U.S. and French business that resulted principally from a decrease in net sales of test instruments in both markets and a decline in net sales in the French operation of networking products -12- and services. In the U.S. market, the decline in test instrument sales was caused by approximately $440,000 of returned product by a major distributor due to delays in demand by one of the Regional Bell Operating Companies ("RBOC") and other customers. In the French business operation, the decline in test equipment sales was principally due to decreased demand from several existing customers. The decline in net sales of networking products and services was principally due to increased competition from additional distributors appointed by the product manufacturers. These additional distributors resulted from a change in the product manufacturers' marketing approach following the merger and consolidation of several major equipment manufacturers and the increased competition has resulted in a reduction of overall prices. The French operation has entered into new distributor agreements in order to obtain additional or replacement products, sales of which are expected to commence in the third quarter of 1999. Net sales of voice and data transmission products in France increased and partially offset the reduction in net sales of other products due to increased demand, however this increase is not expected to be sustained beyond the current year. Sales of new products introduced this year (e.g. remote access servers and digital subscriber line transmission products) are expected to offset the reduced demand for existing transmission products next year. The decrease in net sales in the Components sector resulted principally from: - A decrease in demand for digital switch products manufactured and distributed in the U.S. market; - The absence of net sales from the Company's XCEL Lite display monitor business which was disposed of in the fourth quarter 1998; and, - A decrease in net sales of the Company's subsystem assembly products in the U.S., sales of which were discontinued as of the end of the second quarter of 1999. Net sales for the Company's U.K. and Japan operations were substantially the same in the second quarter of 1999 as those of 1998, although a change in product mix occurred. Net sales of digital switch and sub assembly products marketed in the U.K. in the second quarter of 1999 declined by approximately 35% from the same period of the prior year but this decline was offset by an increase in the net sales of custom power supply products. Additionally, while the backlog for power supply products has declined from last year due to delays in placement of long-term orders, this condition is not expected to continue as order bookings toward the end of the second quarter of 1999 and thereafter have increased. Net sales in the Company's Circuits sector decreased in the second quarter of 1999 compared with the same period in 1998 as a result of: - The absence in the second quarter of net sales from the Company's HyComp, Inc. subsidiary, the assets of which were sold effective March 31, 1999; and, - A decrease in net sales at the Company's XCEL Etch Tek division that resulted from constrained working capital. -13- GROSS PROFIT The composition of consolidated gross profit by business sector and the percentages of related net sales are shown in the following table for the periods indicated:
Three Months Percent of Three Months Percent of Ended Related Ended Related Sector June 30, 1999 Net Sales June 30, 1998 Net Sales ------------- --------- ------------- --------- Test Equipment $ 1,446 39.6% $ 1,940 44.7% Components 933 35.6% 1,153 36.8% Circuits 11 2.0% 323 21.5% -------- -------- Total $ 2,390 35.1% $ 3,416 38.1% -------- -------- -------- --------
Due to the decrease in net sales in the second quarter of 1999 compared with the same period in 1998, consolidated gross profit decreased $1,026,000 or 30.0%. Additionally, the Company experienced a decrease in gross profit as a percent of net sales, as shown above, due principally to decreased gross profit margins in the Test Equipment sector. This sector's U.S. business operation experienced a substantial decline in gross profit margin from approximately 60% in the second quarter of 1998 to 47% in the same period of 1999 resulting principally from lower sales and, consequentially, less absorption of fixed manufacturing overhead. Consequently, the Company restructured this operation in the second quarter of 1999 and expects to realize annual cost savings of approximately $1 million. The sector's French operation experienced a slight increase in gross profit percent (from 36.7% in the second quarter of 1998 to 37.4% for the second quarter of 1999) as higher transmission product margins helped support what otherwise would have been a larger decrease in gross margin percent due to lower net sales. Gross margin as a percent of net sales for the Components sector declined only slightly due to minor changes in product mix and the decrease in net sales and consequential unabsoption of manufacturing overhead. The U.S. operation of the Components sector has continued to reduce its infrastructure cost as it has disposed of or phased out individual product lines. This planned approach to the anticipated decrease in net sales enabled the U.S. operations to substantially maintain its gross profit margin that decreased from 44.1% in the second quarter of 1998 to 41.8% in the same period in 1999. Additionally, in order to further ensure the continued profitability of this operation, in August 1999, the Company instituted additional cost reduction measures that are expected to result in annualized savings of an additional $310,000. Gross profit percent for the Company's U.K. business operations increased from 25.4% in the second quarter of 1998 to 27.3% in the second quarter of 1999 principally as a result of the sale of higher margin digital switch and sub assembly products however this experience is not expected to continue in future periods. In the Company's Circuits sector, gross profit percent decreased substantially principally due to the loss of the gross profit contribution from the net sales of the Company's HyComp, Inc. subsidiary (the assets of which were sold in the first quarter of 1999). Gross profit percent at the Company's remaining circuit's business did not change materially from the second quarter of 1998 to the same period of 1999. -14- OPERATING EXPENSES Operating expense for the three months ended June 30, 1999 and 1998 were comprised of the following.
Three Months Three Months Ended Ended June 30, 1999 June 30, 1998 ------------- ------------- Commissions $ 189 $ 312 Other selling expense 850 941 ------ ------ Total selling expense 1,039 1,253 General & Administrative 1,851 1,543 ------ ------ Total Selling, General & Administrative $2,890 $2,796 ------ ------ ------ ------ Engineering & product development $ 477 $ 574 ------ ------ ------ ------
Total selling expense as a percentage of net sales was 15.3% and 14.0% for the three months ended June 30, 1999 and 1998, respectively. Commissions as a percent of net sales decreased to 2.8% in the second quarter of 1999 from 3.5% in the second quarter of 1998 due principally to the relative increase in the percentage of net sales from the Components sector and the relative decrease in the percentage of net sales from the Circuits sector which more than offset the higher commission percentage of the Test Equipment sector. The increase in total selling expenses as a percentage of net sales was due to the relative increase in net sales of the Test Equipment sector (as a percent of total net sales) in the second quarter of 1999 versus the same period in 1998 as this sector has much higher fixed sales and marketing expenses (as a percentage of net sales) than the other two sectors. General and administrative expenses increased by $308,000 from the second quarter of 1998 to the second quarter of 1999. This increase was principally due to the recording of a reserve in the amount of $466,000 for the net amount of a note receivable which was determined to be uncollectable when the maker of the note was unable to remit the first principal payment that was due in the second quarter of 1999. The note originated as part of the sale of the Company's XCEL Arnold Circuits, Inc. subsidiary ("XCEL Arnold") in the first quarter of 1998. The expense associated with the reserve was partially offset by lower general and administrative expenses in the U.S. Test Equipment sector business, a reduction in general corporate expenses and reduced shareholder relations expenses. Engineering and product development costs originated principally from the research and product development activities of the Test Equipment sector and the Company's Hycomp, Inc. subsidiary in the Circuits sector and decreased $97,000 or 16.9% due to the absence of such expenses in the second quarter of 1999 from the Company's HyComp, Inc. subsidiary, that was sold at the end of the first quarter of 1999. In future periods, engineering and product development costs will be solely attributable to the Test Equipment sector and are expected to increase modestly as the U.S. Test Equipment operations add additional resources to focus on bringing newer products to market in the near term in an effort to increase future net sales. OTHER INCOME AND EXPENSE The decrease in interest expense of $94,000 in the second quarter of 1999 compared to the same period in 1998 resulted principally from lower average borrowings during the current period. The increase in the second quarter of 1999 in other expense (income), net resulted principally from the equity in the earnings of the Company's unconsolidated affiliate - Digital Transmission Systems, Inc. - -15- acquired on January 31, 1999. Other income for the three months ended June 30, 1998 also included a reduction in the gain on the sale of XCEL Arnold in the amount of $90,000. SIX MONTHS ENDED JUNE 30, 1999 VERSUS JUNE 30, 1998 NET SALES Consolidated net sales for the first six months of 1999 decreased by approximately $4,402,000 or 23.5% compared with the same period in 1998. The table below shows the composition of consolidated net sales by business sector.
Six Months Six Months Variance- Ended Ended Increase/ Percent Sector June 30, 1999 June 30, 1998 (Decrease) Change ------------- ------------- ---------- ------- Test Equipment $ 7,357 $ 8,529 $(1,172) (13.7)% Components 5,540 5,653 (113) (2.0)% Circuits 1,414 4,531 (3,117) (68.8)% ------- ------- ------- Total $14,311 $18,713 $(4,402) (23.5)% ------- ------- ------- ------- ------- -------
The relative percent of net sales by sector between the respective periods experienced the following changes:
Six Months Six Months Ended Ended Sector June 30, 1999 June 30, 1998 ------------- ------------- Test Equipment 51.4% 45.6% Components 38.7% 30.2% Circuits 9.9% 24.2% ----- ----- Total 100.0% 100.0% ----- ----- ----- -----
During the first six months of 1999, the Test Equipment sector experienced a decrease in net sales in both the U.S. and French business that resulted principally from the decreased sales of test instruments in both markets and a decline in sales in the French operation of networking products and services. In the U.S. market, the decline in test instrument sales resulted from a delay in the expected delivery of certain equipment to an RBOC and other smaller customers and traditionally reduced capital spending in the early months of each calendar year, during which time customers develop and finalize their capital spending plans for the current year. In the French business operation, test equipment sales were impacted principally by the decision of a significant customer to delay anticipated purchases and a general reduction in demand for these products. The decline in net sales of networking products and services was principally due to the merger of several major products suppliers, the introduction of new equipment models and associated delay relating to retraining of personnel and business partners, and increased competition due to the introduction into the marketplace of additional competing distributors appointed by the manufacturers that has resulted in a reduction of overall prices. The French operation entered into new distribution agreements in order to obtain additional or replacement products, sales of which are expected to commence in the third quarter of 1999. Due to increased demand, the net sales of voice and data transmission products in France increased during the second quarter of 1999, partially offsetting the reduction in net sales of other products. Although this increase is not expected to be sustained beyond the current year, sales of new products -16- introduced this year (e.g. remote access servers and digital subscriber line transmission products) are expected to offset the reduced demand for existing transmission products next year. There was only a nominal change in the level of net sales in the Components sector as the absence of net sales of XCEL Lite display monitor in the U.S (which was disposed of in the fourth quarter 1998) and reduced net sales of the Company's subsystem assembly products (which were discontinued at the end of the second quarter of 1999) were substantially offset by increased sales at the Company's U.K. business operations. The increase in net sales for the U.K. operation was principally due to increased net sales of custom power supply products. Net sales at the Company's Japan operation were substantially the same in the first six months of 1999 as those of 1998. Net sales in the Company's Circuits sector decreased in the first six months of 1999 compared with the same period in 1998 as a result of: - The absence in current period of net sales from both the Company's XCEL Arnold and HyComp, Inc. subsidiaries the assets of which were sold effective as of March 31, 1998 and March 31, 1999, respectively; and, - A decrease in net sales at the Company's XCEL Etch Tek division that resulted from constrained working capital as well as a general decline in demand in the personal computer industry which generated increased competition for all other market segments in which the division competes. GROSS PROFIT The composition of consolidated gross profit by business sector and the percentages of related net sale are shown in the following table for the periods indicated:
Six Months Percent of Six Months Percent of Ended Related Ended Related Sector June 30, 1999 Net Sales June 30, 1998 Net Sales ------------- --------- ------------- --------- Test Equipment $ 2,900 39.4% $ 3,589 42.1% Components 2,016 36.4% 1,843 32.6% Circuits 81 5.7% 220 4.9% -------- -------- Total $ 4,997 34.9% $ 5,652 30.2% -------- -------- -------- --------
Due to the decrease in net sales in the first six months of 1999 compared with the same period in 1998, gross profit decreased $655,000 or 11.6%. Additionally, the Company experienced a decrease in gross profit as a percent of net sales, as shown above, principally due to increased gross profit margins in the Components sector. The Test Equipment sector's U.S. business operation experienced a decline in gross profit margin from approximately 49.6% in the first six months of 1998 to 39.2% in the same period of 1999 as a result of lower sales caused by approximately $440,000 of return product by a major distributor due to delays in demand by an RBOC and other smaller customers. The decreased in net sales for this sector resulted in lower gross profit due to lower absorption of fixed manufacturing overhead. The sector's French operation experienced a small increase in gross profit percent (from 38.1% in the first six months of 1998 to 40.0% for the first six months of 1999) due to the change in product sales mix to the internally manufactured higher margin transmission products. -17- Gross margin as a percent of net sales for the Components sector increased in the first six months of 1999 compared with the same period in 1998 due to a shift in product mix in the U.S. business operations to higher-margin digital switch products which comprised a larger portion of total net sales (from 72.3% of net sales in the first six months of 1998 to 83.4% in the same period of 1999). Despite an overall decline in net sales for the U.S. component operation, this product mix change enabled gross profit to remain essentially the same for the comparable period in the prior year. Additionally, as the U.S. operation of the Components sector has shed lower margin product lines, it has continued to reduce its infrastructure, enabling it to maintain gross profit margins despite a continued decline in net sales. Gross profit percent for the Company's U.K. business operations increased from 25.7% for the first six months of 1998 to 28.7% in the same period of 1999 principally as a result of a change in the sales mix toward the higher margin digital switch and sub assembly products, which increase is not expected to continue in the second half of 1999. In the Company's Circuits sector, gross profit for the first six months of 1999 increased slightly compared with the same period in 1998 due principally to the absence of the gross profit deficit of XCEL Arnold Circuits, Inc. in the first six months of 1999 (XCEL Arnold had a gross profit of $(362,000) in 1998 prior to its sale on March 31, 1998). Gross profit percent at the Company's remaining circuit's business did not change materially from the first six months of 1998 to the same period of 1999. OPERATING EXPENSES Operating expense for the six months ended June 30, 1999 and 1998 were comprised of the following.
Six Months Six Months Ended Ended June 30, 1999 June 30, 1998 ------------- ------------- Commissions $ 439 $ 594 Other selling expense 1,788 2,142 ------ ------ Total selling expense 2,227 2,736 General & Administrative 4,380 3,178 ------ ------ Total S,G & A $6,607 $5,914 ------ ------ ------ ------ Engineering & product development $1,035 $1,145 ------ ------ ------ ------
Total selling expense as a percentage of net sales was 15.6% and 14.6% for the six months ended June 30, 1999 and 1998, respectively. Commissions as a percent of net sales was essentially unchanged for the first six months of 1999 compared with the same period of 1998 (3.1% and 3.2% for 1999 and 1998, respectively). The increase in commission expense as a percent of net sales for the Test Equipment sector (from 3.6% to 5.5% for the first six months of 1998 to the same period in 1999) was offset by a similar decline in the commission percentage in the Circuits sector. This decrease resulted from the reduction in the relative percentage of net sales from the Circuits sector compared to total net sales. With the expected increase in relative percentage of net sales from the Test Equipment sector compared of total net sales, commission expense as a percent of total net sales is expected to increase accordingly. The increase in total selling expenses as a percentage of net sales was due to the increase in Test Equipment sector net sales, as a percent of total net sales, in the first six months of 1999 versus the same period in 1998. This phenomenon results from the fact that this sector has much higher fixed as well as variable sales and marketing expenses (as a percentage of net sales) than the other sectors. -18- General and administrative expenses increased $1,202,000 in the first six months of 1999 compared to the same period of 1998. This increase was principally comprised of the following: - Investor relations expense totaling approximately $522,000 associated with the Company's program to retain the listing of its common stock on the Nasdaq SmallCap Market ("Nasdaq"). These non-cash expenses were attributable to the issuance of common stock and warrants as payment for services provide by third parties in support of this effort. Despite this effort, the trading price of the Company's common stock was insufficient to meet the minimum listing maintenance requirement and the stock was consequently delisted from Nasdaq as of May 12, 1999 ("see Liquidity and Capital Resources"). The Company does not expect to incur such expenses again in the foreseeable future. - Compensation expense of approximately $193,000 in connection with the Company's agreement to a one-time adjustment in the number of shares of common stock issuable under the terms of certain Contingent Stock Agreements between the Company and two of the former officers/owners of Critical Communications, Inc. which was acquired by the Company in October 1997. The Company made this adjustment to ensure the retention of the engineering and product development services of these individuals. - The recording of a reserve in the second quarter of 1999 in the amount of $466,000 for the net amount of a note receivable which was determined to be uncollectable when the maker of the note was unable to remit the first principal payment required in the second quarter of 1999. (see second quarter discussion above). Engineering and product development costs originated principally from the research and product development activities of the Test Equipment sector and the HyComp, Inc. subsidiary of the Circuits sector and decreased $110,000 or 9.6% due to the absence of such expenses in the second quarter of 1999 as a result of the sale of the assets of the Company's HyComp, Inc. subsidiary at the end of the first quarter of 1999. In future periods, engineering and product development costs will be solely attributable to the Test Equipment sector and are expected to increase modestly. OTHER INCOME AND EXPENSE The decrease in interest expense of $142,000 in the first six months of 1999 compared to the same period in 1998 resulted principally from decreased average borrowings during the respective periods. The increase in the first six months of 1999 in other expense (income), net resulted principally from the equity in the earnings of an unconsolidated affiliate (Digital Transmission Systems, Inc.) acquired on January 31, 1999. Other expense (income), net for the six months ended June 30, 1999 and 1998 also included a gain on the sale of HyComp's assets of $331,000 and a gain on the sale of XCEL Arnold's assets in the amount of $580,000. -19- LIQUIDITY AND CAPITAL RESOURCES Cash of $328,000 was provided by operations in the first six months of 1999 versus cash of $2,260,000 used in operations in the first six months of 1998. The decrease in cash used in operations resulted from improved collection of accounts receivable, reduction of inventories and adjustments to net loss for other non-cash expenses. The Company received $750,000 from the sale of the assets of HyComp and used those proceeds for reduction of both long-term and current debt as well as for additional working capital purposes. During the first six months of 1999 the Company paid down approximately $668,000 in long-term debt obligations (approximately $183,000 of which was related to HyComp) and $395,000 in current notes payable utilizing the cash flow from operations and the proceeds of the HyComp sale. The Company acquired only $52,000 in new property plant and equipment and does not expect to make any major purchases for the remainder of the current year. The Company requested and received a temporary overadvance of $350,000 on its line of credit from its domestic lender in June 1999. The overadvance is scheduled to decrease by $50,000 on August 1st, by an additional $100,000 on August 31st and to be retired by September 23rd. As of the date hereof, the Company has complied with the terms of the overadvance agreement. The temporary overadvance was required due the return of approximately $440,000 of certain equipment purchased by a domestic distributor of the Company's Test Equipment sector business. The return was caused by a delay in the anticipated timing of orders from an RBOC and certain other smaller customers. Reshipment of the equipment to the end users began in late June 1999 and completion is expected by September 1999. In May 1999, the Company restructured the operations of its U.S. Test Equipment sector business. Substantial reductions in staff occurred as well as major changes in the management of the business. The business infrastructure costs were reduced to a level that is expected to assist the business to operate profitably at its current level of sales. The anticipated annual cash savings is approximately $1 million. Additionally, the business will attempt to reduce its facility size by subletting a portion of its current facility. The completion of the reduction in facility space is expected by the end of the third quarter of 1999. As a result of the expected improved operating results from restructured operations described above and improvements in the results of operations the Company's Etch Tek division which occurred in June and July 1999 and are expected to be maintained during the third quarter of 1999, the Company has repaid the August 1st reduction in the overadvance on its line of credit and expects to be able to repay the remaining overadvance in accordance with the terms described above. DELISTING OF COMMON STOCK AND CONVERSION RATE OF PREFERRED STOCK On May 12, 1999, the listing of the Company's common stock on the Nasdaq SmallCap Market ("Nasdaq") was discontinued and thereafter, the Company's common stock has been traded on the OTC Bulletin Board under the symbol "MCTL". On August 6, 1999, the Company announced that an agreement previously reached with the holders of the Company's Series A convertible preferred stock (the "Preferred Shares") and an extension thereof, which limited the conversion rate of such stock to $0.50 per common share so long as the Company's common stock continued to be listed on Nasdaq, had been terminated as a result of the delisting. The conversion rate for the Preferred Shares reverted to the terms of the original subscription agreement which provided that conversion would occur at the lower of $1.25 per common share or the -20- arithmetic average of the three lowest closing bid prices during the forty (40) days immediately prior to conversion. The elimination of the minimum conversion price may increase the number of common shares to be issued upon conversion. As a consequence of these two events, the Company could likely find it more difficult to obtain capital though an equity offering of its stock in the future. LEGAL PROCEEDINGS There is one legal proceeding pending against the Company (see Note 4 to the Consolidated Condensed Financial Statements included elsewhere herein). As of the date hereof, management believes that the outcome of this pending proceeding will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. YEAR 2000 The Company continues its assessment of the potential impact of the Year 2000 issue on its (i) computer applications and operating systems, (ii) equipment which uses embedded software, (iii) products sold to customers and (iv) interactions with third parties in order to determine the Company's state of readiness; costs to address the Company's Year 2000 issues; risks of the Company's Year 2000 issues; and any necessary contingency plans. Certain of the Company's telephone test and transmission software-driven products utilize computer calendar/clock data and are presently Year 2000 compliant. Additionally, information regarding available upgrades necessary to enable previous versions of such products to be made Year 2000 compliant have been made available to purchasers. The majority of the products produced by the Company do not utilize computer calendar/clock data and consequently have no potential Year 2000 problems. The Company is currently installing accounting and operations management computer applications which are Year 2000 compliant and which operate on computer operating systems that are also Year 2000 compliant at the last facility requiring such installation. The Company estimates that the completion of this final installation will occur during the third quarter of 1999. The Company did not initiate such changes in application and operating software systems in order to accommodate the Year 2000 issue but rather to upgrade and enhance its information systems capability. As a part of its selection criteria, the Company considered the impact of the Year 2000 issue. The Company is currently finalizing its review of internal Year 2000 issues and its evaluation of any potential Year 2000 issues related to third parties. While the Company currently believes that the impact of the Year 2000 issue will not have a material effect on the Company's operations or financial condition, its assessment of this issue is not yet complete and therefore uncertainty exists as to whether material Year 2000 issues exist. EFFECTS OF INFLATION The impact of inflation and changing prices has not been significant on the financial condition or results of operations of either the Company or its various operating subsidiaries. -21- EURO CONVERSION The Company has operating subsidiaries located in France and the U.K. with combined net sales from these operations in the first six months of 1999 approximating 53% of total Company net sales. Net sales from the French subsidiary participating in the Euro conversion were 34% of the Company's net sales in the first six months of 1999. The Company continues to review the impact of the Euro conversion on its operations. In 1998, the Company's European operations took steps to ensure their capability of entering into Euro transactions as of January 1, 1999. No material changes to information technology and other systems were necessary to accommodate these transactions as such systems previously had the capability to utilize multiple currencies. While it is difficult to assess the competitive impact of the Euro conversion on the Company's European operations, at this time, the Company does not foresee any material impediments in its ability to compete for orders from customers requesting pricing using the new exchange rate. Since the Company has no significant direct sales between its U.S. operations and Europe, exchange rate risk is regarded as nominal. OUTLOOK FOR THE COMPANY The Company's overall strategy continues to be focused on the expansion of its Test Equipment sector businesses through the acquisition and/or development of new products, product lines and/or separate operating companies while concurrently maximizing the synergy between its wholly-owned Test Equipment sector businesses and its recently acquired 37%-owned affiliate, Digital Transmission Systems, Inc. The Company is also directing its efforts to the divestment of the Company's existing non-core business operations so as to be able to redirect capital to the higher margin Test Equipment sector. In addition, the Company continues its efforts to maximize short to intermediate term profitability on existing maturing product lines in all sectors through price increases and lower operating costs as has been recently accomplished in the U.S. Components business and in the U.S. Test Equipment business. These recent cost reduction actions are expected to result in an annualized cost savings of approximately $1,350,000. As noted above, the French Test Equipment subsidiary has begun to market a broader range of test, transmission and networking products sourced through licensing, reseller and other agreements. These actions, in conjunction with the disposal of lower margin Circuits and Components sector businesses, and the restructured business operations at the Company's domestic Test Equipment sector business have resulted in the Company generating cash from operating activities during the first six months of 1999 of $328,000 compared with cash being consumed by operating activities of $2,260,000 in the first six months of 1998. Although there can be no assurances, the Company believes these actions to date will result in continued improvement in operating results through the remainder 1999 and thereafter. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities" ("SFAS 133") issued by the FASB is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The -22- Company does not expect adoption of SFAS 133 to have a material effect on its financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None PART II - OTHER INFORMATION Item 1. Legal Proceedings No material new developments. See Note 4 - Litigation in the accompanying unaudited consolidated condensed financial statements and Legal Proceedings section of Item 3 of the Company's 1998 Annual Report on Form 10-K for a description of previously reported proceedings. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders On June 10, 1999, the Company held its Annual Meeting of Stockholders. Matters voted on and results of the voting were as follows: A. Election of Directors:
Name Class Votes Received Votes Withheld ---- ----- -------------- -------------- Carmine T. Oliva III 10,648,848 90,384 Robert B. Runyon III 10,654,852 84,380
David A. Barrett is a Class I director and Laurence P. Finnegan, Jr. is a Class II director whose terms of office expire at the Company's Annual Meeting of Stockholders in 2000 and 2001, respectively. B. Ratification of Selection by the Board of Directors of BDO Seidman, LLP as Certified Public Independent Accountants:
For Against Abstain --- ------- ------- 10,676,037 32,721 30,474
David Barrett resigned his position as a director of the Company on June 30, 1999 for personal reasons. -23- Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Description Number ----------- ------ 27 Unaudited Financial Data Schedule for the six months ended June 30, 1999. (b) Reports on Form 8-K. Reports on Form 8-K were filed as follows: (1) Dated April 19, 1999, under Item 5 - Other, was filed on April 30, 1999. (2) Dated May 13, 1999, under Item 5 - Other, was filed on May 19, 1999. -24- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MicroTel International, Inc. August 13, 1999 /s/ Carmine T. Oliva -------------------------------------- Carmine T. Oliva Chief Executive Officer (Principal Executive Officer) /s/ James P. Butler -------------------------------------- James P. Butler Chief Financial Officer (Principal Accounting and Financial Officer) -25- EX-27 2 EX-27
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 122 0 6,206 260 5,441 12,375 4,499 3,025 18,539 9,623 1,532 810 0 56 6,851 18,539 14,311 14,311 9,314 16,471 0 485 202 (1,876) 13 0 0 0 0 (1,889) (0.12) (0.12)
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