<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended March 31, 1997 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) 391-4321
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange
on which registered
<S> <C>
Common Stock $.0033 par value None
</TABLE>
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 March 31, 1997 there were 9,311,179 shares of common stock
outstanding.
<PAGE> 2
PART 1-FINANCIAL INFORMATION
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 998 $ 886
Accounts receivable 6,705 4,738
Inventories 8,836 6,297
Other current assets 1,044 724
-------- --------
Total current assets 17,583 12,645
Plant and equipment-net 5,292 5,006
Software development costs-net 829
Goodwill-net 6,697 1,836
Other assets 1,567 1,092
-------- --------
$ 31,968 $ 20,579
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 1,512 $ 352
Notes payable to institutional lenders 2,913 3,140
Current portion of long term debt 1,072 1,058
Accounts payable and accrued expenses 10,693 6,255
Deferred compensation 982
-------- --------
Total current liabilities 17,172 10,805
Long term debt 3,335 3,565
Deferred compensation liability 676
Minority interest 61 59
-------- --------
Total long-term liabilities 4,072 3,624
Redeemable preferred stock 811 794
Stockholders' equity:
Common stock 31 20
Additional paid-in capital and other 14,578 9,412
Accumulated deficit (4,696) (4,076)
-------- --------
Total stockholders' equity 9,913 5,356
-------- --------
$ 31,968 $ 20,579
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 3
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
(in thousands except
per share amounts)
<S> <C> <C>
Net sales $ 7,707 $ 7,336
Cost of sales 6,234 5,372
------- -------
GROSS PROFIT 1,473 1,964
Operating expenses:
Selling, general and administrative 1,775 1,467
Engineering and product development 98 106
------- -------
INCOME (LOSS) FROM OPERATIONS (400) 391
Other income (expense)
Interest expense (198) (128)
Other (1) 22
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (599) 285
Income taxes 4 3
------- -------
NET INCOME (LOSS) $ (603) $ 282
======= =======
NET INCOME (LOSS) PER COMMON SHARE $ (0.10) $ 0.05
======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN CALCULATING
NET INCOME (LOSS) PER SHARE 6,244 5,814
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(603) $ 282
Reconciliation to cash provided by
(used in) operations:
Depreciation and amortization 162 138
Amortization of intangible assets 48 38
Minority interest 2 12
Changes in operating assets and liabilities:
Accounts receivable (157) 72
Inventories 440 (99)
Other assets (43) 412
Accounts payable and accrued expenses 93 (739)
----- -----
Cash provided by (used in) operations (58) 116
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Net disposals (purchases) of
property, plant and equipment 13 (179)
Cash acquired in reverse acquisition 264
----- -----
Cash provided by (used) in investment activities 277 (179)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments to) related parties 660 27
Net borrowings (repayments) of other short-term debt (370) (271)
Net borrowings (repayments) of long-term debt (281) 679
----- -----
Cash provided by financing activities 9 435
----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH (116) (48)
----- -----
NET INCREASE (DECREASE) IN CASH 112 324
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 886 392
----- -----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 998 $ 716
===== =====
</TABLE>
See notes to consolidated condensed financial statements.
-5-
<PAGE> 5
MICROTEL INTERNATIONAL, INC.
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 2,4, and 5
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
ORGANIZATION AND BUSINESS
MicroTel International, Inc. (the Company) is a holding company for its
three wholly-owned subsidiaries-CXR Telcom Corporation, CXR S.A., and,
effective March 26, 1997, XIT Corporation (XIT). CXR Telcom Corporation
and CXR S.A. design, manufacture and market electronic
telecommunication test equipment and data communications equipment. XIT
designs, manufactures, and markets information technology products,
including displays and input components, subsystem assemblies, printed
circuits, and hybrid microelectronic circuits. The Company conducts its
operations out of various facilities in the U.S., France, England, and
Japan and organizes itself in three product line sectors-Circuits,
Components and Subsystem Assemblies, and Instrumentation and Test
Equipment.
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. 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 financial
position as of March 31, 1997 and December 31, 1996 and results of
operations and cash flows for the three months ended March 31, 1997 and
1996. It is suggested that these interim consolidated financial
statements be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, l996.
As discussed more fully in Note 2, the Company merged with XIT on March
26, 1997. The merger was accounted for as a purchase of the Company by
XIT in a "reverse acquisition" because the existing shareholders of the
Company prior to the merger did not have voting control of the combined
entity after the merger. In a reverse acquisition, the accounting
treatment differs from the legal form of the transaction, as the
continuing legal parent company, the Company, is not assumed to be the
acquiror and the financial statements of the combined entity are those
of the accounting acquiror (XIT), including any comparative prior year
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<PAGE> 6
financial statements presented by the combined entity after the
business combination. Consequently,the consolidated condensed financial
statements include the accounts of XIT and its subsidiaries, and
beginning March 26, 1997, include the Company and its other
subsidiaries, CXR Telcom Corporation and CXR S.A. (the Former Company).
Intercompany balances and transactions are eliminated in consolidation
and the currencies of the countries in which foreign subsidiaries are
located are considered their functional currencies. Cumulative
translation adjustments result from converting from these functional
currencies to U.S. dollars.
FISCAL YEAR END CHANGE
In connection with the reverse acquisition accounting treatment
described above, XIT changed its fiscal year end from September 30 to
December 31 to adopt the fiscal year end of the Former Company.
STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
In accord with the reverse acquisition accounting treatment, the
capital accounts of XIT have been restated to give effect to the merger
exchange ratio (1.451478 common shares of the Company for each common
share of XIT) and to convert XIT's no par value common stock to $.0033
par value common stock of the Company.
Net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Common stock
equivalents were antidilutive and therefore not part of the shares used
in calculating net income (loss) per share for the three months ended
March 31, 1997 and 1996, respectively.
On March 3, 1997 the Financial Accounting Standards Board issued FAS
No. 128 "Earnings per Share" (FAS 128), which will become effective for
the Company for its year end December 31, 1997, requiring restatement
of quarterly and prior year financial information, if applicable. This
pronouncement provides a different method of calculating earnings per
share than is currently used in accordance with APB No. 15 "Earnings
per Share". FAS No. 128 provides for the calculation of Basic and
Diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share of APB No. 15. The
potential effects of FAS 128 on the consolidated condensed financial
statements presented herein has yet to be determined.
(2)MERGER WITH XIT
On March 26, 1997, XIT of Ontario, California merged with a
wholly-owned, newly formed subsidiary of the Company, with XIT as the
surviving subsidiary. Pursuant to the transaction, the former
shareholders of XIT were issued approximately 6,115,000 shares of
common stock of the Company, or approximately 66% of the issued and
outstanding common stock. In addition, holders of XIT stock options and
warrants collectively have the right to acquire an additional 2,153,240
shares of common stock. Collectively, then the former XIT shareholders
own, or have the right to acquire,approximately 65% of the Common Stock
of the Company on a fully-diluted basis as of the date of the
transaction.
-7-
<PAGE> 7
As noted above, the merger is accounted for as a purchase of the Former
Company by XIT. Accordingly, the purchase price consists of the value
of the common stock outstanding of the Former Company at the date of
the merger of $5,011,000 plus estimated direct costs of the acquisition
of $636,000 and the acquired assets and liabilities of the Former
Company have been recorded at their estimated fair values at the date
of the merger. The excess of $4,904,000 of the purchase price over the
preliminary valuation of the net assets acquired was recorded as
goodwill and is being amortized on a straight-line basis over 15 years.
The preliminary purchase price allocation is subject to change when
additional information concerning asset and liability valuations is
obtained.
The following represents the unaudited pro forma results of operations
as if the merger had occurred at the beginning of the periods indicated
and combines the Former Company's results of operations for the year
ended December 31, 1996 and the three months ended March 31, 1997 with
those of XIT's for its year ended September 30, 1996 and the three
months ended March 31, 1997, respectively, with adjustments to reflect
amortization of the estimated excess price over the fair value of the
net assets acquired. (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Year
Ended Ended
March 31, September 30,
1997 1996
---- ----
<S> <C> <C> <C>
Net sales $10,703 $47,552
======= =======
Net loss $(2,694) $(3,841)
======= =======
Net loss per common share $ (.29) $ (.42)
======= =======
</TABLE>
The pro forma results of operations above do not purport to be
indicative of the results that would have occurred had the merger taken
place at the beginning of the periods presented or of results which may
occur in the future.
(3)INVENTORIES
Inventories consist of the following at March 31, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
(in thousands, except
per share amounts)
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $4,118 $2,718
Work-in-process 3,146 2,642
Finished goods 3,578 1,289
Reserves (2,006) (352)
======= =======
$8,836 $6,297
======= =======
</TABLE>
(4)BANKING ARRANGEMENTS
Both XIT and a subsidiary have bank lines of credit which expired
originally on January 15, 1997, and which currently expire under
extension arrangements on June 30, 1997. Additionally, both XIT and the
subsidiary are in violation of certain covenants under the related loan
agreements. Although the bank has not waived these defaults, it has
agreed to forbear from taking any action with respect to same until the
extended expiration
-8-
<PAGE> 8
date. Based on discussion with the bank, management believes that these
lines will be renewed with more favorable advance rates against related
collateralized assets and with less restrictive financial covenants.
However, there can be no assurance that this will occur. Outstanding
borrowings under these lines of credit were $2,124,000 and $2,027,000
at March 31, 1997 and December 31, 1996, respectively.
(5)LITIGATION
In September, 1994 Raymond Jacobson, a former officer and director of
the Company and a participant in the Company's deferred compensation
plan, 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 for life under his
deferred compensation agreement dated May 11, 1993 (the "1993
Agreement"), by discontinuing payment in August 1994. The 1993
Agreement superseded a previous deferred compensation agreement dated
April 1, 1977 (the "1977 Agreement") which had provided for twice the
level of payments. Mr. Jacobson was claiming damages of approximately
$1,200,000, which he purported to be the present value of all payments
to be made under the 1993 Agreement. In June 1995 the Company paid Mr.
Jacobson all amounts past due under the contract plus interest and
reinstated the bi-weekly payments, which have continued to date.
On May 20, 1996, Daniel Dror & Co, Inc. ("DDC"), instituted a suit
against Mr. Jacobson in the District Court for Galveston County, Texas
alleging damages arising from DDC's investment of more than $2,000,000
for the purchase of 1,072,000 shares of the Company's common stock. On
February 11, 1997, Mr. Jacobson, through his attorney, demanded that
the Company indemnify him, hold him harmless and pay for the cost of
defense, including reasonable attorney's fees and costs in connection
with the litigation instituted against him by DDC. This suit was
subsequently dismissed by DDC.
On February 14, 1997, Mr. Jacobson, through his attorney, gave notice
to the Company that he believed that the litigation instituted against
him by DDC provided a basis for him to rescind the 1993 Agreement and
assert his rights to full payment under the 1977 Agreement
Notwithstanding the above, the Company management and Mr. Jacobson have
conducted settlement discussions since June 1996, and the Company
believes that an enforceable settlement was reached on January 22,
1997. Mr. Jacobson apparently disclaims this agreement based on the
actions noted above. On February 28, 1997 the Company filed a motion
for continuance to file a counterclaim asserting that the January 22,
1997 agreement supersedes all previous agreements with Mr. Jacobson.
A court supervised settlement conference with Mr. Jacobson was held on
March 26, 1997. Although a tentative settlement was reached, the
settlement was subject to fulfillment of a number of conditions
subsequent which did not occur and therefore was not binding on either
party. Subsequent thereto, several settlement offers have been proposed
by plaintiff's counsel, none of which are acceptable to the Company. A
trial in the matter has been scheduled for August 25, 1997.
The Company does not believe that the value of a settlement of the
above matter or alternatively a trial judgement will be materially in
excess of amounts already recorded by the Company for the deferred
compensation arrangement.
-9-
<PAGE> 9
In October 1996, David Scheinfeld brought an action in the Supreme
Court of the State of New York, County of New York, to recover monetary
damages in the amount of $300,000 allegedly sustained by the failure of
the Company, its stock transfer agent and its counsel to timely deliver
and register 30,000 shares of Common Stock for which payment had been
made. The Company was informed by David Scheinfeld that in order to
settle his claims, the Company would have to issue him unrestricted
shares of common stock. Since the Company cannot issue unrestricted
shares (absent registration), the Company has answered Mr. Scheinfeld's
motion and is seeking to compel him to serve a complaint upon the
defendants.
Although the ultimate outcome of the matters noted above cannot be
predicted with certainty, pending actual resolution, in the opinion of
management, the disposition of these matters will not have a material
adverse affect on the consolidated results of operations or financial
position.
(6) PRIVATE PLACEMENT
On February 20, 1997, the Company accepted a commitment from Yorkton
Securities Inc. ("Yorkton"), pursuant to which Yorkton would use its
best efforts to raise a minimum of $5,000,000 and a maximum of
$10,000,000 through a private placement of investment units consisting
of one share of restricted common stock and one quarter of a warrant to
purchase one share of restricted common stock. The pricing of the units
is based on a 20% discount from the ten day average closing bid price
of the Company's common stock preceding the date of contracting with
the institutional investors (the "Average Reported Price"), with a
minimum price per unit of $2.50 and maximum price of $3.50. The
investors warrants have an exercise price of 130% of the Average
Reported Price. Additionally, Yorkton and one other intermediary earn
an aggregate commission of 10% of the gross proceeds and warrants to
acquire 10% of the shares purchased in the offering at an exercise
price of the lesser of the Average Reported Price or $3.50 per share,
and Yorkton further is reimbursed for accountable expenses of the
offering up to 2% of the gross proceeds.
On April 14, 1997, a first closing occurred on 2,000,000 investment
units, for gross proceeds of $5,000,000. Net proceeds to the Company
were $4,400,000. The offering, which is structured to accommodate
multiple closings, would terminate on the earlier of i) the date the
maximum offering of $10,000,000 is contracted or ii) the currently
extended termination date of May 31, 1997.
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<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material developments. See Note 5 - Litigation of the accompanying
unaudited consolidated condensed financial statements and Item 3. Legal
Proceedings of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 for a description of previously reported
proceedings.
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
a) Exhibits:
27.1-Restated Financial Data Schedule for the Three Months Ended
March 31, 1997
27.2-Restated Financial Data Schedule for the Three Months Ended
March 31, 1996
b) A report on Form 8-K dated January 6, 1997 under Item 2. Acquisition
and Disposition of Assets was filed on January 21, 1997 and subse-
quently amended on Form 8-KA filed March 17, 1997.
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<PAGE> 11
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.
/s/ Barry E. Reifler
June 18, 1997 ----------------------------------------
Barry E. Reifler, CFO
(Principal Accounting and
Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 998,000
<SECURITIES> 0
<RECEIVABLES> 6,491,000
<ALLOWANCES> 236,000
<INVENTORY> 8,836,000
<CURRENT-ASSETS> 17,583,000
<PP&E> 8,827,000
<DEPRECIATION> 3,535,000
<TOTAL-ASSETS> 31,968,000
<CURRENT-LIABILITIES> 17,172,000
<BONDS> 3,335,000
811,000
0
<COMMON> 31,000
<OTHER-SE> 9,882,000
<TOTAL-LIABILITY-AND-EQUITY> 31,968,000
<SALES> 7,707,000
<TOTAL-REVENUES> 7,707,000
<CGS> 6,234,000
<TOTAL-COSTS> 6,234,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (6,000)
<INTEREST-EXPENSE> 198,000
<INCOME-PRETAX> (599,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (603,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (603,000)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 716,000
<SECURITIES> 0
<RECEIVABLES> 3,442,000
<ALLOWANCES> 32,000
<INVENTORY> 4,391,000
<CURRENT-ASSETS> 9,127,000
<PP&E> 6,463,000
<DEPRECIATION> 2,595,000
<TOTAL-ASSETS> 15,239,000
<CURRENT-LIABILITIES> 7,073,000
<BONDS> 2,087,000
875,000
0
<COMMON> 8,551,000
<OTHER-SE> (3,767,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,239,000
<SALES> 7,336,000
<TOTAL-REVENUES> 7,336,000
<CGS> 5,372,000
<TOTAL-COSTS> 5,372,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> 128,000
<INCOME-PRETAX> 285,000
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 282,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
