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 March 3l, 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 March 31, l996 there were 13,915,913 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 March 3l, l996 and December 31, l995 3 Consolidated Condensed Statements of Operations Three Months Ended March 31, l996 and l995 4 Consolidated Condensed Statements of Cash Flows Three Months Ended March 31, l996 and l995 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Part II - OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults upon Senior Securities 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 MicroTel International, Inc. Consolidated Condensed Balance Sheets (Unaudited) March 31, Dec. 31, 1996 1995 ---- ---- (in thousands) ASSETS Current assets: Cash and cash equivalents: $46 $432 Investments in marketable securities 152 152 Accounts receivable 3,336 3,582 Inventories: Finished goods $1,648 $1,774 Work in process 829 960 Parts 1,484 1,414 ------- ------- 3,961 4,148 Other current assets 512 283 ------- ------- Total current assets 8,007 8,597 Plant and equipment-net 812 866 Capitalized software 1,084 1,052 Foreign tax receivable 779 790 Other assets 45 20 ------- ------- $10,727 $11,325 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $999 $759 Current portion long term debt 234 252 Accounts payable 2,045 2,184 Accrued payroll and related expenses 1,067 1,083 Other accrued liabilities 802 666 Deferred income 262 350 ------- ------- Total current liabilities 5,409 5,294 Long term debt 240 227 Deferred compensation liability 788 803 Deferred rent 42 45 ------- ------- Total liabilities 6,479 6,369 Stockholders' equity: Common stock 45 45 Additional paid-in capital 22,378 22,293 Accumulated deficit (17,489) (16,774) Stockholder's note receivable (1,337) (1,337) Deferred compensation (76) (88) Cumulative translation adjustments 727 817 ------- ------- Stockholders' equity 4,248 4,956 ------- ------- $10,727 $11,325 ======= ======= See notes to consolidated condensed financial statements. 3 MicroTel International, Inc. Consolidated Condensed Statements of Operations (Unaudited) For the three months ended March 31, 1996 1995 ---- ---- (in thousands except per share amounts) Sales $4,134 $5,660 Costs and expenses: Cost of sales 2,527 3,319 Engineering and product development 543 435 Selling and marketing 1,038 1,102 Administration 793 672 Other expense\(income)-net (52) 44 ------ ------ 4,849 5,572 ------ ------ Net income (loss) ($715) $88 ====== ====== Net income (loss) per common share ($0.05) $0.01 ====== ====== Weighted average number of shares used in calculating net income (loss) per share 13,817 13,039 ====== ====== See notes to consolidated condensed financial statements. 4 MicroTel International, Inc. Consolidated Condensed Statements of Cash Flows (Unaudited) For the three months ended March 31, 1996 1995 ---- ---- (in thousands) Cash flows from operating activities: Net income (loss) ($715) $88 Reconciliation to cash provided by (used in) operations: Depreciation and amortization 80 68 Amortization of intangible assets 35 69 Changes in assets and liabilities: Accounts receivable 245 653 Inventories 188 (672) Other assets (229) 41 Accounts payable (139) 91 Other accrued liabilities 120 60 Other noncurrent liabilities (105) 36 ------ ------ Cash provided by (used in) operations (520) 434 ------ ------ Cash flows from investing activities: Additions to plant and equipment net of retirements (42) (78) Capitalized software (109) (170) ------ ------ Cash used in investment activities (151) (248) ------ ------ Cash flows from financing activities: Short-term borrowing 240 45 Long-term debt: Additions 30 107 Repayments (24) Common stock transactions, net 97 ------ ------ Cash provided by financing activities 343 152 ------ ------ Effect of exchange rate changes on cash (58) 272 ------ ------ Net increase (decrease) in cash (386) 610 Cash and cash equivalents at beginning of period 432 947 ------ ------ Cash and cash equivalents at end of period $46 $1,557 ====== ====== See notes to consolidated condensed financial statements. 5 MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) 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 period presented. The results for the period 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) The Company's U.S. subsidiary, CXR Telcom, has a bank line of credit with available borrowings thereunder based on eligible receivables and inventory and with a maximum borrowing limit of $l,000,000. The line of credit agreement contains covenants which provide for, among other things, the maintenance of certain financial ratios and profitability of CXR Telcom. At December 3l, l995, CXR Telcom was in violation of the profitability covenant and the bank waived the default with the stipulation that CXR Telcom return to profitability by March 3l, l996 and recover all losses incurred during l995 by June 30, l996 or the line of credit would be converted to a factoring arrangement. On May 15, l996, although CXR Telcom incurred a loss for the first quarter, the bank further waived reconsideration of the credit facility until its scheduled renewal on June 3, l996. 6 MICROTEL INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Results of Operations - First Quarter l996 vs. First Quarter l995 Consolidated sales and gross margins for the first quarter were comprised of the following results for the Company's U.S. operating subsidiary, CXR Telcom, and its French operating subsidiary, CXR S.A. Quarter Ended March 31, l996 l995 ---- ---- (in thousands) Sales CXR Telcom $1,796 $2,360 CXR S.A. 2,338 3,300 ------ ------ Total $4,l34 $5,660 ====== ====== Gross Margins CXR Telcom $ 645 $ 972 CXR S.A. 962 l,369 ------ ------ Total $l,607 $2,34l ====== ====== Consolidated sales declined by $l,526,000 or 27% in l996 as compared to the first quarter of l995, comprised of declines of $564,000 and $962,000 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 has resulted from the consolidation and/or restructuring of these companies in the wake of the passage of the l995 Telecommunications Bill. CXR S.A.'s sales decline resulted from very strong price competition in the European modem market, a trend which is expected to continue, coupled with a general decline in sales to its major customer, France Telecom, which is undergoing a reorganization to facilitate its privatization. To replace these revenues in the short term, CXR S.A. plans to convert to European format and introduce certain of CXR Telcom's products to its product line and continues to emphasize growth through the distribution of an increasing number of other manufacturers' telecommunications products. In the U.S., the impact of the reorganizations of CXR Telcom's customers is a temporary phenomenon, which 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 long distance services. Consolidated gross margins declined from 4l% in l995 to 39% in 7 l996. CXR S.A. was able to maintain its overall margins at 4l% with lower margins on transmission product sales being offset by higher margins on distributor product sales, but CXR Telcom's margins declined from 41% to 36%. CXR Telcom's margins were negatively impacted by underabsorption of fixed manufacturing overhead costs due to the decline in production levels accompanying the lower sales volume. Engineering and product development costs increased by $l08,000 in the first quarter of l996 over l995, principally as a result of greater net capitalization of engineering costs in l995 due to the relative mix of product development versus product maintenance efforts during the respective periods. Selling and marketing costs increased in relation to sales from l9% in l995 to 25% in l996 due to fixed departmental expenses not being as fully leveraged in the current period with the decline in sales. Administration expenses increased by $l2l,000 due principally to training costs incurred by CXR Telcom to achieve its ISO 9001 certification. Other (income) expense-net improved by $96,000 due 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, l995 to December 15, l996. Liquidity and Capital Resources Cash used in operations during the first quarter of l996 was $520,000 versus operations providing $437,000 in cash flow in the first quarter 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. At December 31, l995, CXR Telcom was in default of certain covenants of its bank line of credit agreement and had obtained a waiver, with the understanding that the subsidiary would return to profitability in the first quarter of l996 or the credit facility would be converted to a factoring arrangement. On May l5, l996, although CXR Telcom incurred a loss in the first quarter, the bank further waived reconsideration of the credit facility until its scheduled renewal date on June 3, l996. 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. 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings No material developments. 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 March 31, l996. 9 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 May , 1996 ------------------------------ Barry E. Reifler, CFO (Principal Accounting and Financial Officer) 10