<PAGE>
UNITED STATES
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 Quarterly Period Ended June 30, 1997
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 333-6952
MAS TECHNOLOGY LIMITED
(Exact name of registrant as specified in its charter)
NEW ZEALAND NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organisation) Identification No.)
24 BRIDGE STREET, LOWER HUTT, WELLINGTON, NEW ZEALAND
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (+64 4) 569-2170
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 1994 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 No X
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
ordinary shares as of the latest practicable date.
Ordinary Shares, No par value per 6,500,000 shares
share each represented by one American (Outstanding at June 30, 1997)
Depositary Share
(Class)
Page 1
<PAGE>
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1
Condensed Consolidated Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997 and
March 31, 1997.
Condensed Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and 1997.
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1996 and 1997.
Notes to Condensed Consolidated Interim Financial Statements
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K
SIGNATURES
Page 2
<PAGE>
ITEM 1
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MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, June 30, June 30,
1997 1997 1997
NZ$ NZ$ US$
(note 2)
(Audited) (Unaudited) (Unaudited)
<CAPTION>
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10 $28,515 $19,362
Accounts receivables, net of allowance of NZ$97,
NZ$97 and US$66, respectively 20,189 20,128 13,667
Inventory 8,135 10,741 7,293
Prepaids and other 137 336 228
----------- ----------- -----------
Total current assets 28,471 59,720 40,550
Deferred taxes 519 597 405
Property and equipment, net 2,122 2,220 1,509
Intangible assets 1,069 982 665
Deferred offering costs 2,150 - -
----------- ----------- -----------
Total assets 34,331 63,519 43,129
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdraft $ 518 $ - $ -
Short-term borrowings 6,600 - -
Accounts payable 10,576 11,407 7,745
Accrued employee benefits payable 1,733 782 531
Accrued professional fees payable 1,380 1,543 1,048
Other accrued liabilities 315 483 328
Income taxes payable 1,095 1,756 1,192
Acquisition costs payable 755 - -
----------- ----------- -----------
Total current liabilities 22,972 15,971 10,844
Deferred taxes 43 7 5
----------- ----------- -----------
Total liabilities 23,015 15,978 10,849
Shareholders equity
Ordinary shares, no par value; 4,500,000; 6,500,000;
6,500,000 issued and outstanding, respectively 4,734 39,723 26,972
Retained earnings 7,593 8,673 5,889
Cumulative translation adjustment (12) (6) (4)
Deferred compensation (999) (849) (577)
----------- ----------- -----------
Total shareholders' equity 11,316 47,541 32,280
----------- ----------- -----------
Total shareholders' equity and liabilities $34,331 $63,519 $43,129
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
Page 3
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------------------
1996 1997 1997
NZ$ NZ$ US$
(note 2)
<S> <C> <C> <C>
Sales
Products and services revenue 8,075 18,522 12,576
Cost of sales
Products and services 5,042 11,688 7,936
----------- ----------- -----------
Gross profit 3,033 6,834 4,640
Operating expenses:
Research and development 845 1,183 803
Selling and marketing 970 2,857 1,940
General and administration 719 1,256 853
----------- ----------- -----------
Total operating expenses 2,534 5,296 3,596
Income from operations 499 1,538 1,044
Interest income (expense) (56) (143) (97)
Other income - 314 213
----------- ----------- -----------
Net income before taxes 443 1,709 1,160
Income tax expense 183 629 427
=========== =========== ===========
Net income 260 1,080 733
=========== =========== ===========
Net income per ordinary share $0.06 $0.23 $0.16
=========== ========== ==========
Weighted average ordinary shares and
ordinary share equivalents outstanding 4,151 4,677 4,677
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements
Page 4
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------------------------
1996 1997 1997
NZ$ NZ$ US$
(note 2)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 260 1,080 733
Adjustments to reconcile net income to net
cash provided (used) in operating activities:
Depreciation and amortisation expense 136 234 159
Unrealised foreign exchange (gains) loss 4 (409) (278)
Amortisation of deferred compensation 112 150 102
Deferred taxes 52 (114) (77)
Changes in assets and liabilities:
Accounts receivable 2,862 161 109
Prepaids and other (177) (199) (135)
Inventory (3,010) (2,606) (1,769)
Billings on uncompleted contracts (40) - -
Accounts payable (2,610) 831 564
Accrued employee benefits (482) (951) (646)
Accrued professional fees - 163 111
Other accrued liabilities (113) 168 114
Income taxes payable (335) 661 449
------------ ----------- ------------
Net cash provided/(used) by operating activities (3,341) (831) (564)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase consideration for NZ Telecoms (Pty) Limited - (728) (494)
Proceeds from disposal of fixed assets - 13 9
Acquisition of property and equipment (210) (285) (194)
------------ ----------- ------------
Net cash used by investing activities (210) (1,000) (679)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from the issuance of ordinary shares, net of
offering costs of NZ$2,150 and US$1,460, respectively - 37,139 25,217
Proceeds from short-term borrowing 2,000 - -
Repayment of short-term borrowing - (6,600) (4,481)
Increase / (decrease) in cash overdraft 251 (518) (352)
------------ ----------- ------------
Net cash provided by financing activities 2,251 30,021 20,384
Net increase / (decrease) in cash held (1,300) 28,190 19,141
Adjustment for foreign currency differences - 315 214
Cash and cash equivalents, beginning of period 1,300 10 7
------------ ----------- ------------
Cash and cash equivalents, end of period - 28,515 19,362
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
Page 5
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
MAS Technology Limited and subsidiaries ("MAS" or the "Company") is
incorporated in Wellington, New Zealand. The Company designs, manufactures and
markets medium to long haul digital microwave radio systems for use in the
world-wide telecommunications market. The Company's systems are sold to end
users, domestically and internationally through its direct sales force,
strategic partners, systems providers, OEMs and distributors as well as directly
to end users.
Basis of presentation
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (US GAAP).
The Company publishes its financial statements in New Zealand dollars. In
this Form 10-Q references to "US$" are to United States dollars and references
to "NZ$" are to New Zealand dollars. For the convenience of the reader, this
Form 10-Q contains translations of certain NZ$ amounts into US$. These
translations should not be construed as representations that the NZ$ amounts
actually represent such US$ amounts or could be converted into US$ at the rate
indicated. On June 30, 1997, the Noon Buying Rate was NZ$1.00 to US$0.6790. See
"Other Information - Exchange Rates".
The Company's fiscal year ends on March 31. As used in this Form 10-Q, the
fiscal year ended March 31, 1997 is referred to as "fiscal year 1997", and other
fiscal years are referred to in a corresponding manner.
Basis of consolidation
The accompanying condensed consolidated financial statements include the
accounts of MAS and its wholly-owned subsidiaries, MAS Technology (Pty) Limited
(incorporated in Australia), Marine-Air Services Limited, Marine-Air Systems
Employee Share Trustee Ltd, MAS Technology Limited Company (incorporated in
United States), MAS Technology (Pty) Limited (incorporated in Republic of South
Africa) (effective from September 1, 1996 due to the acquisition of NZ Telecoms
(Pty) Limited), NZ Telecoms (Pty) Limited (incorporated in Republic of South
Africa), Radio Communications and Engineering Services Botswana (Pty) Limited
(incorporated in Botswana) and NZ Telecomms Botswana (Pty) Limited (incorporated
in Botswana, Non-trading). All significant intercompany transactions have been
eliminated in consolidation.
Page 6
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
Revenue recognition
Revenue from product sales is recognized once customers acceptance testing
is complete and the product is shipped provided the Company has not contracted
with the customer to provide value-added services, no significant obligations
remain, and collectability is probable. Provisions for estimated warranty
repairs, returns and allowances are recorded at the time products are shipped.
Contracts
A portion of the Company's revenue is derived from contracts to perform
value-added services, such as network planning, path planning, systems
integration and installation. These value-added services may be provided in
connection with the delivery and installation of the Company's products.
In these situations the Company recognizes revenue according to two
methods: (i) the percentage-of-completion and (ii) completed contract method.
The Company uses the percentage-of-completion method to recognize revenues and
costs on contracts that include value-added service components if the expected
completion date exceeds three months. Such contracts generally are fixed price
and do not exceed 18 months to complete. Revenues and costs are recognized on
these contracts (including the portion of these contracts that relate to product
sales) based on the costs for value-added services incurred to date compared to
estimated total costs for value-added services under the contract. Contract
costs include all direct material, direct labor and indirect costs related to
contract performance. If the expected completion date is less than three months
revenues and costs are accounted for using the completed contract method.
Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are recorded
in the period in which such losses become probable based on the current contract
estimates.
Cost and estimated earnings in excess of billings on uncompleted contracts
represent those contracts in progress for which revenue recognized exceeds
amounts billed. Billings in excess of costs and estimated earnings on
uncompleted contracts represent those contracts in progress for which billings
exceed revenues recognized. Billings are made in accordance with contract terms.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid debt instruments with
remaining maturities of three months or less at the date of purchase.
Page 7
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
Property and equipment
Property and equipment are presented in the consolidated financial
statements at historical cost less accumulated depreciation.
All property and equipment (except land) are depreciated over their useful
lives using the straight-line method of depreciation. Depreciation of property
and equipment under capitalized leases is computed using the straight-line
method over the shorter of estimated lives or lease terms.
The average depreciable lives for major categories of fixed assets are as
follows:
Buildings........................................... 25 years
Office furniture.................................... 5 years
Furniture and fittings.............................. 5 years
Plant and equipment................................. 5 years
Other fixed assets.................................. 5 years
Inventory
Inventory consists of raw material, work in progress and finished goods
which are presented in the consolidated financial statements at the lower of
cost (determined on a first in, first out basis) or net realizable value.
Intangible assets
Intangible assets consist of goodwill, which has an estimated useful life
of five years, resulting from the acquisition of the net assets of NZ Telecoms
(Pty) Limited. Intangible assets at June 30, 1997 comprised cost of NZ$1,078 and
accumulated amortisation of NZ$96.
Income taxes
Income taxes are accounted for by the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities
Page 8
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
of a change in tax rates is recognised in income in the period that
includes the enactment date.
Page 9
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
Foreign currency translation
The functional currencies of the Company's foreign subsidiaries are the
local currencies in which the foreign subsidiaries operate. Assets and
liabilities of the Company's foreign subsidiaries are translated into New
Zealand dollars at period-end exchange rates and revenues and expenses are
translated at average rates prevailing during the period. Translation gains and
losses are included in a separate component of shareholders' equity.
Foreign currency transactions
The Company uses forward foreign exchange contracts to manage its foreign
currency risks. The Company enters into forward foreign currency contracts to
limit the effect of exchange rate changes on anticipated but not firmly
committed transactions, principally future revenues. Gains and losses on these
contracts are recognized in the statement of operations as incurred.
The Company also enters into forward foreign currency contracts to limit
the effect of exchange rate changes on the foreign currency denominated
receivables and payables as losses and gains on forward foreign currency
exchange contracts are offset by gains and losses on the foreign currency
receivables and payables. Gains and losses on the forward foreign currency
contracts and on the underlying receivables and payables are recognised in the
statement of operations as incurred.
Research and development costs
Research and development costs are expensed as incurred. The Company's
internally developed products include both system and application software.
Software development costs are expensed as incurred until both technological
feasibility is achieved and all research and development activities for the
other components of the product have been completed as demonstrated by a working
model. Software development costs incurred subsequent to these two milestones
have been minimal and have been expensed as incurred.
Net income per ordinary share
Net income per ordinary share is computed using the weighted average
number of ordinary shares outstanding and dilutive ordinary share equivalents
from the assumed exercise of options outstanding during the period, if any,
using the treasury stock method.
Page 10
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
The Financial Accounting Standards Board recently issued SFAS No. 128,
Earnings per Share. This statement requires the presentation of basic earnings
per share ("EPS") and, for companies with complex capital structures, diluted
EPS. SFAS No. 128 is effective for annual and interim periods ending after
December 31, 1997. The Company does not expect that the basic EPS will differ
materially from the net income per share data presented in the accompanying
consolidated financial statements.
Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from these estimates.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
trade accounts receivable. The Company invests its cash and cash equivalents in
a variety of financial instruments. The Company, by policy, limits the amount of
credit exposure to any one financial institution or commercial issuer.
The Company performs on-going credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
It is the Company policy to obtain confirmed letters of credit or other
insurance or guarantees from all customers whose unpaid balance exceeds a
predetermined threshold set by the Board of Directors. The Company maintains an
allowance for doubtful accounts to cover potential credit losses.
Recoverability of long-lived assets
The Financial Accounting Standards Board recently issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. The Company adopted SFAS No. 121 in
fiscal 1996. The adoption of SFAS No. 121 did not have a material effect on the
Company's results of operations.
Page 11
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MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
Pursuant to SFAS No. 121, the Company assesses the recoverability of the
carrying amount of its long lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may be impaired. If
the estimated future undiscounted operating cash flows over the remaining useful
life of the long lived asset is in excess of the carrying amount of the asset, a
charge to income would be recognized for the excess carrying amount of the asset
over its fair value.
Dividend policy
Pursuant to the Deposit Agreement between the Company and the Bank of New
York, should the Company declare and pay dividends, such dividends will be
declared in New Zealand Dollars and paid in United States Dollars with respect
to holders of American Depository Receipts.
Fair value of financial instruments
The carrying values of the Company's cash and cash equivalents, accounts
receivable, cash overdraft, accounts payable and short term borrowings
approximate their respective fair values due to the relatively short maturity of
these instruments.
Stock-based compensation
The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
fair value of the underlying stock exceeded the exercise price. On April 1,
1996, the Company adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, which requires entities to provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in fiscal year 1996 and future years as if the fair value-based
method defined in SFAS No. 123 had been applied. For the periods disclosed, pro
forma net income and pro forma earnings per share would not have differed
materially from the amounts reported in the accompanying consolidated financial
statements.
Unaudited interim results
The accompanying balance sheet as of June 30, 1997 and the statements of
operations and of cash flows for the three months ended June 30, 1996 and 1997
are unaudited. In the opinion of management, the statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of
Page 12
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MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
interim periods. The data disclosed in these notes to the consolidated financial
statements for these periods are unaudited.
Page 13
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
2. CONVERSION OF NEW ZEALAND DOLLAR AMOUNTS TO UNITED STATES AMOUNTS
The consolidated financial statements as of June 30, 1997 have been
translated for convenience purposes from New Zealand dollar amounts into United
States dollars. Unless otherwise stated, the translations of New Zealand dollars
into United States dollars have been made at NZ$1.00 to US$0.6790, the June 30,
1997, noon buying rate in New York City for cable transfers in New Zealand
dollars as reported by the Federal Reserve Bank of New York. These translations
should not be construed as representations that the New Zealand dollar amounts
actually represent such United States dollar amounts or could be converted into
United States dollars at the rate indicated.
3. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents at June 30, 1997 are US$ denominated
balances totaling approximately NZ$27,344 (US$18,567).
4. INVENTORY
Inventory consists of the following:-
March 31, June 30,
1997 1997
--------- -----------
NZ$ NZ$
(unaudited)
Raw materials 5,093 6,875
Finished goods 2,348 2,471
Work in progress 694 1,395
----- ------
8,135 10,741
===== ======
5. SHAREHOLDERS' EQUITY
1997 Stock option plan
The Company's 1997 Stock Option Plan (the "1997 Plan") was adopted by the
Board on February 15, 1997 and approved by the shareholders on February 15,
1997. A maximum of 540,000 ordinary shares have been authorised for issuance
under the 1997 Plan. On April 11, 1997 the Company granted 318,600 stock options
under the 1997 Stock Option Plan to certain employees at an exercise price of
US$14.00 per
Page 14
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
ordinary share vesting over periods of up to three years. Under the 1997 Plan,
employees and non-employee members of the Board may, at the discretion of the
plan administrator, be granted options to purchase ordinary shares at an
exercise price not less than 85% of their fair value on the grant date.
The 1997 Plan is administered by the Compensation Committee (the "Plan
Administrator"). The Plan Administrator has complete discretion to determine
which eligible individuals are to receive option grants, the time or times when
such option grants are to be made, the number of ordinary shares subject to each
such grant, the vesting schedule to be in effect for the option grant and the
maximum term for which any granted option is to remain outstanding.
The Plan Administrator has the authority to provide for accelerated
vesting of the outstanding options in connection with certain changes in control
of the Company or the subsequent termination of employment following a change in
control event.
Upon an acquisition of the Company by merger or asset sale, each
outstanding option will be subject to accelerated vesting under certain
circumstances.
Stock appreciation rights are authorized for issuance under the 1997 Plan
which provide the holders with the election to surrender their outstanding
options for a distribution from the Company equal to the excess of (i) the fair
market value of the vested ordinary shares subject to the surrendered option
over (ii) the aggregate exercise price payable for such ordinary shares. Such
distribution may be made in cash or in ordinary shares.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the 1997 Plan in return for the grant of new options
for the same or different number of ordinary shares with an exercise price per
ordinary share based upon the fair market value of the ordinary shares on the
new grant date.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on February 14, 2007, unless sooner terminated by the Board.
Company re-registration
On December 9, 1996 the Company re-registered under the New Zealand
Companies Act 1993 (the "Act"). In accordance with the provisions of the Act,
the Company has no authorized capital and the ordinary shares have no par value.
All applicable share and per share data have been adjusted for all periods
presented.
Page 15
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(UNAUDITED)
Ordinary share split
On April 11, 1997, the Company effected a 3.6-for-1 share split of the
Company's Ordinary Shares. All share, per share and stock option data for all
periods presented has been restated to reflect the share split.
Initial Public Offering
On June 19, 1997, the Company consummated an initial public offering of
2,000,000 Ordinary Shares, each represented by one American Depositary Share, at
a price per share of US$14.00. After underwriting discounts and expenses, the
net proceeds to the Company were approximately NZ$37,139 (approximately
US$25,217).
On July 7, 1997, the Underwriters exercised the option to purchase 300,000
additional ADSs resulting in net proceeds to the Company of approximately
NZ$5,800 (approximately US$3,900) after underwriting discount.
6. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------ ------
NZ$ NZ$
Supplemental disclosure of cash flow information:
Cash paid for interest $ 51 $ 143
====== ======
Cash paid for income taxes $ - $ -
====== ======
Reclassification of deferred offering costs
to ordinary shares on closing of the
initial public offering $ - $2,150
====== ======
Page 16
<PAGE>
ITEM 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated by these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in the Company's
Registration Statement on Form F-1 dated June 19, 1997. Factors that could
cause or contribute to such differences include those discussed herein as well
as those included in the documents that the Company has filed or may file from
time to time with the Securities and Exchange Commission.
OVERVIEW
Based in Wellington, New Zealand, the Company designs, manufactures, markets and
supports low and medium frequency, medium to long-haul digital microwave radio
links for use in the world-wide telecommunications market.
The Company's revenues from sales of telecommunications products consist
primarily of the following two components: (i) sales of the Company's DXR
products and related services such as network planning, installation and
training services; and (ii) sales of third party products and related services
which are complementary to the Company's products such as antennas, other
microwave equipment necessary to complete a transmission system and non-
proprietary telecommunications products sold under distributor agreements. Sales
of the Company's DXR products and related services during the three months ended
June 30, 1996 and 1997 accounted for 60.1% and 69.0% of sales, respectively
Gross margins on sales of the Company's DXR products and the provision of
related services are typically higher than gross margins on sales of third party
products and related services. Sales of third party telecommunications products
and related services have historically accounted for a significant percentage of
the Company's historical revenues. Sales of third party telecommunications
products and related services during the three months ended June 30, 1996 and
1997 accounted for 39.8% and 31.0% of sales, respectively.
During fiscal years 1996 and the three months ended June 30, 1997, a majority of
the Company's revenues were denominated in US$ while a majority of the operating
expenses were denominated in NZ$. If the value of the NZ$ increases relative to
either the US$ or other international currencies in which the Company's revenues
are denominated, the Company's overall gross profit and net income could be
materially adversely affected. Fluctuations in exchange rates may cause period
to period fluctuations in net income and gross margins. Net income for the three
months ended June 30, 1997 include NZ$309,000 of other income due to unrealized
currency gains arising from the conversion of cash and cash equivalents
denominated in US$. See "Other Information - Exchange Rates".
Page 17
<PAGE>
During fiscal year 1997, the Company significantly expanded its international
sales and marketing operations which resulted in increased costs. Over this
period the Company established offices in several regions and increased its
sales staff across these regions.
On September 1, 1996, the Company acquired certain net assets of a South African
based distributor, NZ Telecoms (Proprietary) Limited, and the shares of two of
its affiliates. This subsidiary sells the Company's and third party
telecommunications products in Southern Africa. The aggregate purchase price was
NZ$1,266,000 with an additional contingent earn-out that provides for further
payments through October 1998 of a maximum of US$2,744,000. The first earn-out
payment totaling NZ$728,000 was paid on April 30, 1997. Substantially all of the
acquisition price and potential earn-out payments will be treated as goodwill
and will be amortized on a straight line basis from the date of payment until
August 31, 2001.
The Company expects that its sales and marketing expenses will increase in
future periods, and if the Company's sales do not correspondingly increase, the
Company's results of operations would be materially adversely affected.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced, and may in the future experience, significant
fluctuations in quarterly sales, gross profits and results of operations
including certain seasonal effects. The Company's sales in any period are
generally derived from sales of products pursuant to large orders from a limited
number of customers. As the Company's gross margins on such orders can differ
substantially as a result of a variety of factors, including competitive
factors, product sales mix, or exchange rate fluctuations, the Company's overall
gross margins may vary significantly on a period-to-period basis. Several of the
Company's existing customers have fiscal years and capital investment budget
cycles that end in March. These same customers typically purchase products
towards the end of such fiscal years or budgetary cycles.
In addition, because the Company's products are often incorporated into a
customer's larger networking initiative, sales of the Company's products
typically involve a significant and lengthy technical evaluation, commitment of
management, sales and other resources and the delays frequently associated with
large capital expenditures. The sales cycle for the Company's products typically
range from six to twelve months. Consequently, the Company may incur a
significant amount of expenses in a period without recognizing a corresponding
sale. Moreover, the Company expects that the average selling price of its
products will also decline as such products mature and as competition increases.
Because of these as well as other factors, the Company believes that period-to-
period comparisons of its quarterly results of options are not necessarily
meaningful and that such comparisons should not be relied upon as indications of
future performance.
RESULTS OF OPERATIONS
Page 18
<PAGE>
The following table sets forth certain consolidated quarterly information of the
Company as a percentage of total sales for the three months ended June 30, 1996
and 1997.
Page 19
<PAGE>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------ ------
Sales 100.0% 100.0%
Cost of sales 62.4 63.1
----- -----
Gross profit 37.6 36.9
Operating expenses:
Research and development 10.5 6.4
Selling and marketing 12.0 15.4
General and administrative 8.9 6.8
----- -----
Total operating expenses 31.4 28.6
Income from operations 6.2 8.3
Interest income (expense) (0.7) (0.8)
Other income - 1.7
----- -----
Net income before income taxes 5.5 9.2
Income tax expense 2.3 3.4
----- -----
Net income 3.2% 5.8%
----- -----
Page 20
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Sales. Sales increased by 129.4% to NZ$18.5 million in the three months
ended June 30, 1997 from NZ$8.1 million in the three months ended June 30, 1996.
Sales of DXR products and related services increased by 163.6% to NZ$12.8
million in the three months ended June 30, 1997 from NZ$4.9 million in the three
months ended June 30, 1996. Sales of third party products and related services
and other sales declined by NZ$776,000 for the comparable three months, but this
decline was offset by sales of third party products and services by NZ Telecoms
(Proprietary) Limited of NZ$3.3 million. NZ Telecoms (Proprietary) Limited also
distributed NZ$3.0 million of the Company's DXR products and related services.
Telecommunications products and services accounts for 100.0% of sales in the
three months ended June 30, 1997 compared to 99.9% in the three months ended
June 30, 1996. In the three months ended June 30, 1997, 69.0% of sales were
generated from DXR products and services and 31.0% of sales were generated from
third party products and services, compared to 60.1% and 39.8%, respectively in
1996.
Gross profit. Gross profit increased 125.3% to NZ$6.8 million in the
three months ended June 30, 1997 from NZ$3.0 million in the three months ended
June 30, 1996. Gross margin decreased to 36.9% in the three months ended June
30, 1997 from 37.6% in the three months ended June 30, 1996. This decrease is
primarily attributable to lower margins on third party product sales combined
with an increase in distributor commissions in the three months ended June 30,
1997 compared to the comparable period in 1996.
Research and development costs. Research and development costs primarily
consist of salaries of research and development personnel, materials and
allocated overhead associated with the development and enhancement of the
Company's two DXR product families. Research and development costs increased
40.0% to NZ$1.2 million, or 6.4% of sales, in the three months ended June 30,
1997 from NZ$845,000, or 10.5% of sales in the three months ended June 30, 1996.
This increase is primarily attributable to the expenditures on additional staff
of NZ$168,000 and NZ$128,000 for materials respectively for developing
enhancement of the DXR 100 product family. Substantially all of the research and
development expenditures in the three months ended June 30, 1997 were expended
on the enhancement and development of new features for the Company's DXR product
families, particularly the DXR 100. The Company believes that significant
ongoing investments in research and development are required to remain
competitive.
Selling and marketing expenses. Selling and marketing expenses primarily
consist of salaries of sales and marketing personnel, investment in
international operations and offices, sales commissions, travel expenses,
customer service and support expenses, trade show related activities and
advertising costs. Selling and marketing expenses increased 194.5% to NZ$2.9
million, or 15.4% of sales, in the three months ended June 30, 1997 from
NZ$970,000, or 12.0% of sales, in the three months ended June 30, 1996. This
increase is primarily attributable to the expansion of the
Page 21
<PAGE>
Company's sales and marketing efforts, including the cost of maintaining the new
sales offices totalling NZ$1.2 million, increased costs due to the acquisition
of NZ Telecoms (Pty) Limited totalling NZ$300,000 and the additional marketing
and sales personnel in the Europe, Africa, the Americas and Asia/Pacific sales
regions.
General and administrative expenses. General and administrative expenses
primarily consist of salaries and other expenses for management, finance,
accounting, legal and other professional services. General and administrative
expenses increased 74.7% to NZ$1.3 million, or 6.8% of sales, in the three
months ended June 30, 1997 from NZ$719,000, or 8.9% of sales, in the three
months ended June 30, 1996. This increase was primarily attributable to the
increased costs due to the acquisition of NZ Telecoms (Proprietary) Limited
totalling NZ$391,000, the hiring of additional management personnel and other
staff in New Zealand to support the Company's expanding operations and the
administration of regional sales offices.
Other income. Other income primarily consists of foreign exchange gains
and losses. Other income increased 100% to NZ$314,000 or 1.7% of sales in the
three months ended June 30, 1997 from NZ$0 in the three months ended June 30,
1996. This increase is primarily due to the conversion of the short-term
investments which are denominated in US$ to NZ$ at June 30, 1997, resulting in
unrealised foreign exchange gains totaling NZ$309,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations to date through cash flow
from operations, bank loans and bank advances and the issuance of equity
securities. On June 19, 1997, the Company completed its initial public offering,
raising net proceeds of NZ$35.0 million (US$24.0 million). These funds have been
and will be used to fund (i) the repayment of NZ$7.1 million (approximately
US$4.5 million) in bank loans and advances and (ii) working capital and general
corporate purposes.
The Company has used cashflows from operations of NZ$3.3 million and NZ$831,000
for the three months ended June 30, 1996 and 1997, respectively. The cash used
by operations for the three months ended June 30, 1997 was due to the increase
in inventory of NZ$2.6 million which was offset by increases in operating income
and an increase in accounts payable and income taxes payable of NZ$831,000 and
NZ$661,000, respectively.
Net cashflows used in investing activities in the three months ended June 30,
1997 were NZ$1.0 million. The cash flows used in investing activities have
resulted primarily from the first earn-out payment for the acquisition of NZ
Telecoms (Pty) Limited totaling NZ$728,000, and the purchases of plant and
equipment totaling NZ$285,000. The Company anticipates that it will continue to
incur significant capital commitments in connection with further expansion of
its Research and Development activities and further development in its sales
channel structure.
Page 22
<PAGE>
At June 30, 1997 the Company had working capital of NZ$43.7 million. At June 30,
1997 the Company's principal source of liquidity was approximately NZ$28.5
million in cash and cash equivalents. The increase in cash and cash equivalents
was primarily attributable to proceeds raised from the Company's initial public
offering in June 1997. The Company is currently re-evaluating its funding and
lines of credit with its bank.
The Company believes that its cash and cash equivalents of NZ$28.5 million as of
June 30, 1997 will be sufficient to meet its presently anticipated working
capital and capital expenditure requirements for at least the next twelve
months.
Page 23
<PAGE>
MAS TECHNOLOGY LIMITED
PART II OTHER INFORMATION
Item 1. Legal proceedings
There are no material legal proceedings against the Company.
Items 2 through 4.
Not applicable.
Item 5. Other information
Exchange rates
The following tables sets forth, for each period presented, the average
of the exchange rates on the last day of each month during the
indicated period, the high and low exchange rates, and the exchange
rates at the end of the indicated period for one NZ$, expressed in US$,
based on the noon buying rate (the "Noon Buying Rate") in New York City
for cable transfers payable in NZ$ as certified for customs purposes by
the Federal Reserve Bank of New Zealand.
US$ per NZ$
Three month period ended
---------------------------------------------------------
June 30, Sept 30, Dec 30, March 31, June 30,
1996 1996 1996 1997 1997
Average 0.6817 0.6915 0.7048 0.6967 0.6901
High 0.6905 0.7021 0.7148 0.7085 0.6973
Low 0.6678 0.6823 0.6894 0.6835 0.6789
Period end 0.6860 0.6990 0.7065 0.6947 0.6790
Fluctuations in the exchange rate between the NZ$ and the US$ may
affect the Company's earnings, the book value of its assets and its
shareholders' equity as expressed in US$, and consequently may affect
the market price for the ADSs. Such fluctuations will also affect the
conversion into US$ by the Depositary of cash dividends, if any, paid
in NZ$ on the Ordinary Shares represented by the ADSs.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Page 24
<PAGE>
Exhibit
Number Document Description
- ------- --------------------
3.1 Constitution. (Incorporated by reference to Exhibit 3.2 of the
Company's registration statement under the Securities Act on Form
F-1, Registration Statement No. 333-6952)
4.1 Form of American Depositary Receipt Certificate (Incorporated by
reference to Exhibit 4.1 of the Company's registration statement
under the Securities Act on Form F-1, Registration Statement No.
333-6952)
4.2 Form of Deposit Agreement among MAS Technology Limited, Bank of New
York as Depositary, and holders from time to time of ADSs issued
thereunder. (Incorporated by reference to Exhibit 4.2 of the
Company's registration statement under the Securities Act on Form
F-1, Registration Statement No. 333-6952)
11.1 Computation of Pro forma Net Income per Ordinary Share.
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the three months ended June 30,
1997.
Page 25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAS TECHNOLOGY LIMITED
Date: August 11, 1997 /s/ Peter Wright
------------------------------
Peter Wright
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 26
<PAGE>
EXHIBIT 11.1
MAS TECHNOLOGY LIMITED
STATEMENT RE: COMPUTATION OF NET INCOME PER ORDINARY SHARE
(in thousands, except per share data)
Three months
ended June 30
----------------
1996 1997
NZ$ NZ$
------ ------
Net income 260 1,080
======= =======
Ordinary shares used in share computation -
Weighted average number of ordinary shares outstanding 4,151 4,677
------- -------
Shares used in computation 4,151 4,677
------- -------
Net income per ordinary share NZ$0.06 NZ$0.23
======= =======
Page 27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> NEW ZEALAND DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 0.6790
<CASH> 28,515
<SECURITIES> 0
<RECEIVABLES> 20,561
<ALLOWANCES> 97
<INVENTORY> 10,741
<CURRENT-ASSETS> 59,720
<PP&E> 4,618
<DEPRECIATION> 2,398
<TOTAL-ASSETS> 63,519
<CURRENT-LIABILITIES> 15,971
<BONDS> 0
0
0
<COMMON> 39,723
<OTHER-SE> 7,818
<TOTAL-LIABILITY-AND-EQUITY> 63,519
<SALES> 18,522
<TOTAL-REVENUES> 18,522
<CGS> 11,688
<TOTAL-COSTS> 11,688
<OTHER-EXPENSES> 5,296
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 1,709
<INCOME-TAX> 629
<INCOME-CONTINUING> 1,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,080
<EPS-PRIMARY> 0.166
<EPS-DILUTED> 0.231
</TABLE>
