MicroTel reports 1996 results, including fourth quarter charges; Future financials to be those of merger partner, XIT

Business Wire, April 16, 1997

ONTARIO, Calif.--(BUSINESS WIRE)--April 16, 1997--MicroTel International, Inc. (Nasdaq SmallCap: MCTL) today reported a net loss of $(3,656,000) or $(1.32) per share on sales of $4,264,000 for the three months ended December 31, 1996 versus a net loss of $(670,000) or $(.25) per share on sales of $4,261,000 for the fourth quarter of 1995. For the year ended December 31, 1996, MicroTel reported a net loss of $(4,597,000) or $(1.65) per share on sales of $16,303,000 compared to a net loss of $(667,000) or $(.25) per share on sales of $18,352,000 in 1995.

The net loss in the fourth quarter of 1996 included significant fourth quarter charges totaling $3,048,000, which increased the net loss for the quarter by $(1.10) per share. These adjustments included $1,567,000 of severance and related settlement costs associated with the resignation of MicroTel's Chairman and settlement with its principal shareholder in anticipation of the merger with XIT Corporation ("XIT"), $1,006,000 of write-downs to certain inventory and capitalized software to reflect revised estimates of the impact of current sluggish business levels, and $475,000 related to anticipated settlement costs for certain litigations.

The write-downs of assets noted above, as well as the decline in 1996 results of operations in general, resulted from industry and economic factors which effected MicroTel. In the U.S., sales have been negatively impacted by delays in buying by its principal customers, as a result of the consolidation and/or restructuring of these companies in the wake of the passage of the Telecommunications Bill of 1996 (the "Bill"); and in Europe, sales have been impacted by a decline in sales to France Telecom during its pre-privatization reorganization and a generally weak French economy. Additionally, both domestic and foreign sales have been negatively impacted by the rapid obsolescence of the analog-based components of MicroTel's product lines, particularly older transmission products; and further, both sales and margins have been impacted by extreme price competition for transmission products in general.

In the U.S. the negative impact of the reorganizations in response to the signing of the Bill continues, but is believed to be a temporary phenomenon. The industry repositioning is expected to result in 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. Final implementation guidance on the deregulation provided for in the Bill was released in late August 1996 and MicroTel has been working with its domestic customers to prepare for their future needs in the expansion of their markets.

To overcome the negative factors impacting MicroTel's French operation, it has implemented various changes to its business strategy. It has introduced a new line of ISDN Terminal Adapters to its transmission product line, has begun a new business unit which provides networking solutions to the business user utilizing O.E.M. products, and has refocused its marketing to expand its markets outside of France. Revenue improvements have begun to be realized as a result of these efforts.

As previously reported, on March 26, 1997, XIT merged with a wholly-owned, newly formed subsidiary of Microtel, with XIT as the surviving subsidiary. As a consequence of the merger, former XIT shareholders owned or had a right to acquire, through exercise of options and warrants, approximately 65% of MicroTel's common stock on a fully-diluted basis as of the date of the merger. The merger will be accounted for as a reverse acquisition, because of the change in voting control. Accordingly, the financial information of MicroTel beginning in the first quarter of 1997 will be that of XIT, the "accounting acquiror", including the "old" MicroTel's results of operations from the date of the merger forward. Additionally, any prior period financial information reported for comparative purposes will be that of XIT. For its fiscal year ended September 30, 1996, XIT earned $1,142,000 on sales of $31,248,000.

With respect to XIT's business, beginning in the fourth quarter of its fiscal year ended September 30, 1996, gross margins began to decline significantly as a result of lower gross margins in its XCEL Arnold Circuits, Inc. subsidiary, when its largest customer increased its demand for newer, digital products to replace the higher gross margin analog products it previously purchased. It is expected that gross margins for the subsidiary will improve in the second quarter of calendar 1997, when yield improvements, reductions in overtime and outsourcing, improved cost control, and higher pricing for digital products sold to this customer will begin to show an effect.

MicroTel, through its wholly-owned subsidiaries, CXR Telcom Corporation based in San Jose, California, and CXR S.A. based in Paris, France, designs, manufactures and markets electronic transmission test instruments and data communications equipment to the telecommunications industry, including telephone companies, interconnect carriers, private networks, banks, brokerage firms and government agencies. MicroTel's wholly-owned subsidiary XIT, with vertically integrated operations in the U.S., England, and Japan, designs, manufactures and markets information technology products, including display and input components, subsystem assemblies, printed circuits, and hybrid microelectronic circuits for the international telecommunications, medical, industrial and military/aerospace markets. -0-