<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 December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 333-06952
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 Identification No.)
incorporation or organisation)
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 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
----- -----
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 6,800,000 shares
share, each represented by one American (Outstanding at December 31, 1997)
Depositary Share
(Class)
Page 1
<PAGE>
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1
PAGE NUMBER
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1997. 3
Condensed Consolidated Statements of Operations for
the Three Months and Nine Months Ended December 31,
1996 and 1997. 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 1996 and 1997. 5
Notes to Condensed Consolidated Interim Financial Statements 6
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 22
PART II. OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K 29
EXHIBIT INDEX 30
SIGNATURES 31
Page 2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1
- ------
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997
NZ$ NZ$ US$
(NOTE 2)
ASSETS (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 10 $24,442 $14,184
Short-term investments - 6,300 3,656
Accounts receivable, net of
allowance of NZ$97, NZ$143
and US$83, respectively 19,392 25,353 14,712
Inventory 8,135 15,932 9,245
Prepaids and other 934 2,276 1,321
--------- -------- ---------
Total current assets 28,471 74,303 43,118
Deferred taxes, net 476 466 270
Property and equipment, net 2,122 2,803 1,627
Intangible assets 1,069 852 494
Deferred offering costs 2,150 - -
--------- -------- ---------
Total assets $34,288 $78,424 $45,509
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdraft $ 518 $ - $ -
Short-term borrowings 6,600 - -
Accounts payable 10,576 14,005 8,127
Accrued employee benefits payable 1,733 1,269 736
Accrued professional fees payable 1,380 225 131
Other accrued liabilities 315 2,843 1,650
Income taxes payable 1,095 1,036 601
Acquisition costs payable 755 - -
--------- -------- ---------
Total current liabilities 22,972 19,378 11,245
Shareholders equity
Ordinary shares, no par value;
4,500,000; 6,800,000;
6,800,000 issued and
outstanding, respectively 4,734 45,636 26,483
Retained earnings 7,593 13,748 7,978
Cumulative translation
adjustment (12) 211 122
Deferred compensation (999) (549) (319)
--------- -------- ---------
Total shareholders' equity 11,316 59,046 34,264
--------- -------- ---------
Total shareholders' equity and
liabilities $34,288 $78,424 $45,509
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
Page 3
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------ ------------------------------------
1996 1997 1997 1996 1997 1997
NZ$ NZ$ US$ NZ$ NZ$ US$
(NOTE 2) (NOTE 2)
<S> <C> <C> <C> <C> <C> <C>
Sales
Products and services revenue $ 12,323 $ 23,326 $ 13,536 $ 28,726 $ 62,747 $ 36,412
Cost of sales
Products and services 7,348 13,847 8,035 17,666 39,053 22,662
--------- --------- -------- -------- -------- --------
Gross profit 4,975 9,479 5,501 11,060 23,694 13,750
Operating expenses:
Research and development 875 1,726 1,002 2,581 4,292 2,491
Selling and marketing 2,181 3,434 1,993 4,652 9,413 5,462
General and administration 1,152 1,677 973 2,560 4,309 2,501
--------- --------- -------- -------- -------- --------
Total operating expenses 4,208 6,837 3,968 9,793 18,014 10,454
Income from operations 767 2,642 1,533 1,267 5,680 3,296
Interest income (expense) (136) 372 216 (290) 653 379
Other income 117 3,517 2,041 117 5,760 3,343
Other expense - (2,667) (1,548) - (2,667) (1,548)
--------- --------- -------- -------- -------- --------
Net income before taxes 748 3,864 2,242 1,094 9,426 5,470
Income tax expense 357 1,327 770 542 3,271 1,898
--------- --------- -------- -------- -------- --------
Net income 391 2,537 1,472 552 6,155 3,572
========= ========= ======== ======== ======== ========
Net income per ordinary share
Basic $0.10 $0.40 $0.23 $0.13 $1.08 $0.63
========= ========= ======== ======== ======== ========
Diluted $0.09 $0.37 $0.22 $0.13 $1.00 $0.58
========= ========= ======== ======== ======== ========
Weighted average ordinary shares
and ordinary share equivalents
outstanding
Basic 4,108 6,408 6,408 4,108 5,698 5,698
========= ========= ======== ======== ======== ========
Diluted 4,199 6,828 6,828 4,175 6,124 6,124
========= ========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements
Page 4
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-------------------------------------------------------------------
1996 1997 1997
NZ$ NZ$ US$
(NOTE 2)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 552 $ 6,155 $ 3,572
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortisation expense 421 739 429
Unrealised foreign exchange (gains) loss 10 (1,245) (722)
Amortisation of deferred compensation 336 450 261
Deferred taxes 67 10 6
Changes in assets and liabilities:
Accounts receivable (3,062) (5,273) (3,060)
Prepaids and other (194) (1,342) (779)
Inventory (3,048) (7,797) (4,525)
Accounts payable (1,293) 3,429 1,990
Accrued employee benefits 123 (464) (269)
Accrued professional fees - 119 69
Other accrued liabilities (316) (139) (81)
Income taxes payable (937) (59) (34)
-------- -------- --------
Net cash used by operating activities (7,341) (5,417) (3,143)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase consideration for NZ Telecoms (Pty) Limited (538) (728) (422)
Proceeds from disposal of fixed assets 88 16 9
Acquisition of property and equipment (640) (1,247) (724)
Purchase of available for sale securities - (6,300) (3,656)
-------- -------- --------
Net cash used by investing activities (1,090) (8,259) (4,793)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from the issuance of ordinary shares,
net of offering costs of NZ$2,883 - 41,780 24,245
Proceeds from short-term borrowing 6,800 - -
Repayment of short-term borrowing - (6,600) (3,830)
Increase / (decrease) in cash overdraft 331 (518) (301)
-------- -------- --------
Net cash provided by financing activities 7,131 34,662 20,114
Net increase / (decrease) in cash held (1,300) 20,986 12,178
Adjustment for foreign currency differences - 3,446 2,000
Cash and cash equivalents, beginning of period 1,300 10 6
-------- -------- --------
Cash and cash equivalents, end of period $ - $24,442 $14,184
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
Page 5
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
MAS Technology Limited (including its subsidiaries, "MAS" or the
"Company") is incorporated in Wellington, New Zealand. The Company designs,
manufactures and markets medium to long haul digital microwave radio systems for
use in the world-wide telecommunications market. The Company's systems are sold
to end users, domestically and internationally through its direct sales force,
strategic partners, systems providers, OEMs and distributors as well as directly
to end users.
Basis of presentation
These consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles (US
GAAP).
The Company publishes its financial statements in New Zealand dollars.
In this Form 10-Q references to "US$" 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 December 31, 1997, the Noon Buying Rate was NZ$1.00 to
US$0.5803. 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, MAS Technology
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
Page 6
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
Botswana) and NZ Telecomms Botswana (Pty) Limited (incorporated in Botswana,
Non-trading). All significant intercompany transactions have been eliminated in
consolidation.
Page 7
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(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.
Deferred payments from customers are held under retention clauses
collectable from nine to twelve months after invoicing, particularly in Southern
Africa. Included in prepaids and other are retention payments totalling NZ$2,027
as of December 31, 1997.
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.
Page 8
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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.
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
Page 9
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
assets at December 31, 1997 comprised cost of NZ$1,078 and accumulated
amortisation of NZ$226.
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 of a change in tax rates is recognised in income in the period that
includes the enactment date.
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. The Company also
uses forward foreign exchange contracts to limit the effect of exchange rate
changes on New Zealand dollar cash payments, as the majority of the Company's
cash receipts are in US dollars. 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 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.
Page 10
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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
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
In December 1997, the Company adopted the Statement of Financial
Accounting Standards ("SFAS"), No. 128, Earnings per Share, which requires the
presentation of basic earnings per share ("EPS") and, for companies with complex
capital structures, diluted EPS for all periods presented.
Basic net income per ordinary share is computed using the weighted
average number of ordinary shares outstanding. In the computation of basic net
income per ordinary share, the weighted average number of ordinary shares
outstanding does not include the effects of the ordinary shares issued under the
Company's 1995 Share Scheme. Diluted 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. The computation of
diluted net income per ordinary share includes the dilutive effects of the
ordinary shares issued under the Company's 1995 Share Scheme and the dilutive
effects of stock options granted under the Company's 1997 Stock Option Plan.
As of December 31, 1997, the Company has granted 413,800 options with
a weighted average exercise price of US$15.99. However, 55,000 options with a
weighted average exercise price of US$21.50 have been excluded from the
computation of diluted EPS because their effects are anti-dilutive.
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.
Page 11
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, 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.
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 less than 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
Page 12
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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.
Page 13
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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.
Short term investments
The Company invests its excess cash in high quality marketable
securities to ensure cash is readily available for use in its current
operations. Accordingly, all of the Company's marketable securities are
classified as "available-for-sale" in accordance with the provisions of the SFAS
No. 115.
All short-term investments are reported at fair market value with the
related unrealized holding gains and losses reported as a component of
shareholders' equity. To-date, unrealized gains and losses have not been
significant.
Unaudited interim results
The accompanying balance sheet as of December 31, 1997 and the
statements of operations for the three and nine months ended December 31, 1996
and 1997 and its cash flows for the nine months ended December 31, 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 interim periods. The data disclosed in these
notes to the consolidated financial statements for these periods are unaudited.
2. CONVERSION OF NEW ZEALAND DOLLAR AMOUNTS TO UNITED STATES AMOUNTS
The consolidated financial statements as of December 31, 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
Page 14
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
have been made at NZ$1.00 to US$0.5803, the December 31, 1997, noon buying rate
in
Page 15
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
New York City for cable transfers in New Zealand dollars as reported by the
Federal Reserve Bank of New York. These translations should not be construed as
representations that the New Zealand dollar amounts actually represent such
United States dollar amounts or could be converted into United States dollars at
the rate indicated.
3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Included in cash and cash equivalents and short-term investments at
December 31, 1997 are US$ denominated balances totaling approximately NZ$29,059
(US$16,983).
4. INVENTORY
Inventory consists of the following:-
<TABLE>
<CAPTION>
MARCH 31, DEC 31,
1997 1997
--------- ----------
NZ$ NZ$
(UNAUDITED)
<S> <C> <C>
Raw materials 5,093 9,849
Finished goods 2,348 4,307
Work in progress 694 1,776
----- ------
8,135 15,932
===== ======
</TABLE>
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 authorized for issuance
under the 1997 Plan. As of December 31, 1997 the number of stock options
granted under the 1997 Plan total 413,800 stock options. 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
Page 16
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
schedule to be in effect for the option grant and the maximum term for which any
granted option is to remain outstanding.
Page 17
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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. Under the 1997 Plan options issued by the Company automatically
vest upon the involuntary termination of employment of an option holder within
18 months of the change in ownership of the Company.
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.
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.
Page 18
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
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. On July 7, 1997, the Underwriters exercised
the option to purchase 300,000 additional ADSs. After underwriting discounts and
expenses, the net proceeds to the Company were approximately NZ$41,780
(approximately US$24,245).
6. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------------
1996 1997
----- ----
NZ$ NZ$
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 286 $ 247
===== ======
Cash paid for income taxes $ 828 $2,260
===== ======
Reclassification of
deferred offering costs to
ordinary shares on closing
of the initial public
offering $ - $2,150
===== ======
</TABLE>
7. RE-ORGANISATION AGREEMENT
On December 22, 1997, the Company signed a definitive agreement (the "Re-
organisation Agreement") to effect a tax-free re-organisation (the "Re-
organisation") of the Company with and into Digital Microwave Corporation, a
Delaware corporation ("DMC"). The Re-organisation is intended to qualify as a
pooling-of-interests transaction. DMC will be the surviving corporation of the
Re-organisation. DMC provides advanced wireless solutions, complementary to
those of MAS, for worldwide telephone network interconnection and access.
Pursuant to the Re-organisation Agreement, each fully diluted MAS
ordinary share will be converted into the right to receive approximately 1.2
shares of common stock of DMC, par value US$0.01 per share, assuming
approximately 6,800,000 shares of MAS ordinary shares are outstanding, on a
fully diluted basis, at the closing of the Re-organisation. Based upon that
assumption, DMC will issue approximately 8,200,000 shares of its common stock
and stock equivalents
Page 19
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
in exchange for the ordinary shares and ordinary share equivalents of MAS upon
consummation of the Re-organisation.
Page 20
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of dollars)
(UNAUDITED)
There is no assurance as to whether or when the conditions to
consummate the Re-organisation will be satisfied. The transaction has been
approved by the respective Companies' Boards of Directors, and is expected to
close within approximately 90 days subject to regulatory reviews, approval by
each company's stockholders or shareholders, and other customary closing
conditions.
Page 21
<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 December 31, 1996 and 1997 accounted for 82.6% and 57.8% of sales,
respectively. Sales of the Company's DXR products and related services during
the nine months ended December 31, 1996 and 1997 accounted for 67.3% and 59.7%
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 December 31, 1996 and 1997 accounted for 17.3% and 36.3% of sales,
respectively. Sales of third party telecommunications products and related
services during the nine months ended December 31, 1996 and 1997 accounted for
26.1% and 37.1% of sales, respectively.
During fiscal year 1997 and the three and nine months ended December 31, 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.
Page 22
<PAGE>
Fluctuations in exchange rates may cause period to period fluctuations in net
income and gross margins. Net income for the nine months ended December 31,
1997 includes NZ$3.2 million of other income due to unrealized currency gains
arising from the conversion of cash and cash equivalents denominated in US$.
See "Other Information - Exchange Rates".
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 business results of operations and financial condition would be
materially adversely affected.
During the three months ended December 31, 1997 the Company had sales totalling
NZ$6.2 million or 26.6% of sales to countries in the Asia region. Asian
accounts receivable total NZ$5.0 million as of December 31, 1997. Recent
developments in this area have raised concerns regarding the foreign exchange
risk and the collectability of receivables. The Company has typically invoiced
sales in the Asia region in US dollars and therefore has limited exposure to
local currency exchange rate fluctuations. Also, the Company has typically
obtained letters of credit, credit insurance or prepayments from customers in
the Asia region to minimise the risk of credit losses.
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.
Page 23
<PAGE>
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 operations are not necessarily
meaningful and that such comparisons should not be relied upon as indications of
future performance.
The following table sets forth certain consolidated quarterly information of the
Company as a percentage of total sales for the three and nine months ended
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------- ------------------------------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.6 59.4 61.5 62.2
----- ----- ----- -----
Gross profit 40.4 40.6 38.5 37.8
Operating expenses:
Research and development 7.1 7.4 9.0 6.8
Selling and marketing 17.7 14.7 16.2 15.0
General and administrative 9.4 7.2 8.9 6.9
----- ----- ----- -----
Total operating expenses 34.2 29.3 34.1 28.7
Income from operations 6.2 11.3 4.4 9.1
Interest income (expense) (1.1) 1.6 (1.0) 1.0
Other income 1.0 15.1 0.4 9.2
Other expense - (11.4) - (4.3)
----- ----- ----- -----
Net income before income taxes 6.1 16.6 3.8 15.0
Income tax expense 2.9 5.7 1.9 5.2
----- ----- ----- -----
Net income 3.2% 10.9% 1.9% 9.8%
----- ----- ----- -----
</TABLE>
RESULTS OF OPERATIONS
Sales. Sales increased by 89.3% to NZ$23.3 million in the three
months ended December 31, 1997 from NZ$12.3 million in the three months ended
December 31, 1996. Sales of DXR products and related services increased by 32.5%
to NZ$13.5 million in the three months ended December 31, 1997 from NZ$10.2
million in the three months ended December 31, 1996. The increase in DXR sales
and related services is primarily due to additional orders from customers
expanding a public telephone network in Southern Africa totalling NZ$2.8
million; a public network in Northern Africa totalling NZ$2.5 million and a
public telephone network in the islands of the Indian Ocean totalling NZ$2.4
million. Sales of third party products and related services increased by
296.2% to NZ$8.5 million in the three months ended December 31, 1997 from NZ$2.1
million in the three months ended December 31, 1996. The increase in the sales
of third party products and services is
Page 24
<PAGE>
primarily due to sales to a customer further expanding its private network in
Asia totalling NZ$2.0 million and a private network in Southern Africa totalling
NZ$1.4 million. Telecommunications products and services accounts for 94.1% of
sales in the three months ended December 31, 1997 compared to 99.9% in the three
months ended December 31, 1996. In the three months ended December 31, 1997,
57.8% of sales were generated from DXR products and services and 36.3% of sales
were generated from third party products and services, compared to 82.6% and
17.3%, respectively in 1996.
Sales increased by 118.4% to NZ$62.7 million in the nine months ended
December 31, 1997 from NZ$28.7 million in the nine months ended December 31,
1996. Sales of DXR products and related services increased by 76.9% to NZ$37.5
million in the nine months ended December 31, 1997 from NZ$21.2 million in the
nine months ended December 31, 1996. The increase in sales of DXR products and
related services is primarily due to a customer expanding a public network in
Southern Africa totalling NZ$7.5 million as compared to NZ$1.9 million in the
comparable period; a public network in Northern Africa totalling NZ$6.1 million
as compared to NZ$2.5 million in the comparable period and a public network in
the islands of the Indian Ocean region totalling NZ$3.3 million as compared to
NZ$0.3 million in the comparable period. Sales of third party products and
related services and other sales increased by 210.6% to NZ$23.3 million for the
nine months ended December 31, 1997 from NZ$7.5 million in the nine months ended
December 31, 1996. The increase in the sale of third party products and
services is due to customers expanding a cellular network in the Pacific
totalling NZ$10.0 million as compared to NZ$1.5 million in the comparable period
and a customer expanding a private network in Southern Africa totalling NZ$4.1
million as compared to NZ$0 in the comparable period. Telecommunications
products and services accounts for 96.8% of sales in the nine months ended
December 31, 1997 compared to 99.9% in the nine months ended December 31, 1996.
In the nine months ended December 31, 1997, 59.7% of sales were generated from
DXR products and services and 37.1% of sales were generated from third party
products and services, compared to 67.3% and 26.1%, respectively in 1996.
Gross profit. Gross profit increased 90.5% to NZ$9.5 million in the
three months ended December 31, 1997 from NZ$5.0 million in the three months
ended December 31, 1996. Gross margin increased to 40.6% in the three months
ended December 31, 1997 from 40.4% in the three months ended December 31, 1996.
Gross profit increased 114.2% to NZ$23.7 million in the nine months
ended December 31, 1997 from NZ$11.1 million in the nine months ended December
31, 1996. Gross margin decreased to 37.8% in the nine months ended December
31, 1997 from 38.5% in the nine months ended December 31, 1996. The decrease
in gross margin is due to the increase in the sales of third party products and
related services as a percentage of total sales, which are typically sold at
gross margins lower than DXR products and related services.
Page 25
<PAGE>
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 DXR product families. Research and development costs increased 97.3%
to NZ$1.7 million, or 7.4% of sales, in the three months ended December 31, 1997
from NZ$875,000, or 7.1% of sales in the three months ended December 31, 1996.
This increase is primarily attributable to the expenditures on additional staff
of NZ$267,000 and NZ$265,000 for materials respectively for developing
enhancements of the DXR 100 product family and development of the new DXR 700
product family. Substantially all of the research and development expenditures
in the three months ended December 31, 1997 were expanded on the new DXR 700 and
enhancement and development of new features for the Company's existing DXR
product families.
Research and development costs increased 66.3% to NZ$4.3 million, or
6.8% of sales, in the nine months ended December 31, 1997 from NZ$2.6 million or
9.0% of sales in the nine months ended December 31, 1996. This increase is
primarily attributable to the expenditures on additional staff of NZ$496,000 and
NZ$557,000 for materials respectively for developing enhancement of the DXR 100
and 700 product families. Substantially all of the research and development
expenditures in the nine months ended December 31, 1997 were expended on the
enhancement and development of new features for the Company's DXR product
families. 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 57.5% to NZ$3.4
million, or 14.7% of sales, in the three months ended December 31, 1997 from
NZ$2.2 million, or 17.7% of sales, in the three months ended December 31, 1996.
This increase is primarily attributable to the expansion of the Company's sales
and marketing efforts, including the cost of maintaining the new sales offices
totalling NZ$1.2 million and the additional sales and marketing personnel in the
Europe, Africa, the Americas, Asia and Pacific sales regions.
Selling and marketing expenses increased 102.3% to NZ$9.4 million, or
15.0% of sales, in the nine months ended December 31, 1997 from NZ$4.7 million,
or 16.2% of sales, in the nine months ended December 31, 1996. This increase
is primarily attributable to the expansion of the Company's sales and marketing
efforts, including the cost of maintaining the new sales offices totalling
NZ$3.1 million, increased costs due to the acquisition of NZ Telecoms
(Proprietary) Limited totalling NZ$940,000 and the additional marketing and
sales personnel in the Europe, Africa, the Americas, Asia and Pacific sales
regions.
General and administrative expenses. General and administrative
expenses primarily consist of salaries and other expenses for management,
finance, accounting, legal
Page 26
<PAGE>
and other professional services. General and administrative expenses increased
45.6% to NZ$1.7 million, or 7.2% of sales, in the three months ended December
31, 1997 from NZ$1.2 million, or 9.4% of sales, in the three months ended
December 31, 1996. This increase was primarily attributable to the increased
costs due to the acquisition of NZ Telecoms (Pty) Limited totalling
NZ$410,000 and 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.
General and administrative expenses increased 68.3% to NZ$4.3 million,
or 6.9% of sales, in the nine months ended December 31, 1997 from NZ$2.6
million, or 8.9% of sales, in the nine months ended December 31, 1996. This
increase was primarily attributable to the increased costs due to the
acquisition of NZ Telecoms (Pty) Limited totalling NZ$1.3 million.
Other income. Other income primarily consists of net foreign
exchange gains and losses. Other income increased 2,906.0% to NZ$3.5 million
or 15.1% of sales in the three months ended December 31, 1997 from NZ$117,000 or
1.0% of sales in the three months ended December 31, 1996. This increase is
primarily due to the conversion of the cash and cash equivalents which are
denominated in US$ to NZ$ at December 31, 1997, resulting in realized and
unrealized foreign exchange gains totalling NZ$1.2 million and NZ$1.5 million,
respectively. Also included in other income are net unrealized gains from the
revaluation of foreign denominated account receivables and payables totalling
NZ$688,000 for the three months ended December 31, 1997. Other income also
includes realized foreign exchange gains of NZ$424,000 for the three months
ended December 31, 1997 as compared to NZ$117,000 in the three months ended
December 31, 1996.
Other income increased 4,823% to NZ$5.8 million or 9.2% of sales, in
the nine months ended December 31, 1997. This increase is primarily due to the
conversion of the cash and cash equivalents which are dominated in US$ to NZ$ at
December 31, 1997, resulting in realized and unrealized foreign exchange gains
totalling NZ$1.2 million and NZ$3.2 million, respectively. Also included in
other income are net unrealized gains from the revaluation of foreign
denominated account receivables and payables totalling NZ$688,000 for the three
months ended December 31, 1997. Other income also includes realized foreign
exchange gains of NZ$821,000 for the nine months ended December 31, 1997 as
compared to NZ$117,000 in the comparable period.
Other expense. Other expense consists of unrealized foreign exchange
losses resulting from the revaluation of forward foreign exchange contracts.
Other expense increased 100% to NZ$2.7 million in the three and nine months
ended December 31, 1997 from NZ$0 in the three and nine months ended December
31, 1996. This increase is primarily due to the conversion of US dollar
denominated forward exchange contracts to NZ dollars at December 31, 1997,
resulting in unrealized foreign exchange losses of NZ$2.7 million. Forward
exchange contracts are used as the majority of the Company's cash receipts are
in US dollars as compared to cash payments which are in NZ dollars. See "Other
Information - Exchange Rates".
Page 27
<PAGE>
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. During June and July, 1997, the Company completed its initial
public offering including the exercising of the over-allotment of ADS's, raising
net proceeds of NZ$41.8 million (US$24.2 million). These funds have been and
will be used to fund (i) the repayment of NZ$7.1 million (approximately US$4.1
million) in bank loans and advances and (ii) working capital and general
corporate purposes.
The Company has used cash flows from operations of NZ$7.3 million and NZ$5.4
million for the nine months ended December 31, 1996 and 1997, respectively. In
the nine months ended December 31, 1997, operating activities used net cash of
NZ$5.4 million primarily due to the funding of inventory, accounts receivable
and prepaid and other current assets of NZ$7.8 million, NZ$5.3 million and
NZ$1.3 million, respectively, and an increase in unrealized foreign exchange
gains of NZ$1.2 million. This was partially offset by operating income and an
increase in accounts payable of NZ$3.4 million.
Net cash flows used in investing activities in the nine months ended December
31, 1997 were NZ$8.3 million. The cash flows used in investing activities have
resulted primarily from the purchase of short-term investments totalling NZ$6.3
million, the first earn-out payment for the acquisition of NZ Telecoms
(Proprietary) Limited totaling NZ$728,000, and the purchases of plant and
equipment totaling NZ$1.2 million. The Company anticipates that it will
continue to incur significant capital expenditure in connection with further
expansion of its Research and Development activities and further development in
its sales channel structure.
At December 31, 1997 the Company had working capital of NZ$54.1 million. At
December 31, 1997 the Company's principal source of liquidity was approximately
NZ$30.7 million in cash and cash equivalents and short-term investments. The
increase in cash and cash equivalents and short-term investments 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$30.7 million as of
December 31, 1997 will be sufficient to meet its presently anticipated working
capital and capital expenditure requirements for at least the next twelve
months.
Page 28
<PAGE>
MAS TECHNOLOGY LIMITED
PART II OTHER INFORMATION
Item 1. Legal proceedings
There are no material legal proceedings against the Company.
Items 2, 3 and 4.
Not applicable.
Item 5. Other information
Exchange rates
The following tables sets forth, for each period presented, the
average of the exchange rates on the last day of each month during
the indicated period, the high and low exchange rates, and the
exchange rates at the end of the indicated period for one NZ$,
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
York.
<TABLE>
<CAPTION>
US$ PER NZ$
THREE MONTH PERIOD ENDED
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
DEC 31, MARCH 31, JUNE 30, SEPT 30, DEC 31,
1996 1997 1997 1997 1997
Average 0.7048 0.6967 0.6901 0.6467 0.6166
High 0.7148 0.7085 0.6973 0.6780 0.6460
Low 0.6894 0.6835 0.6789 0.6305 0.5788
Period end 0.7065 0.6947 0.6790 0.6398 0.5803
</TABLE>
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 29
<PAGE>
Exhibit
- -------
Number Document Description
- ------ --------------------
2.1 Agreement and Plan of Reorganization and Amalgamation, dated
December 22, 1997, among Digital Microwave Corporation, South
Amalgamation Sub Ltd. and the Company (Incorporated by reference
to Appendix A of the registration statement under the Securities
Act on Form S-4 Registration Statement No. 333-45053 filed by
Digital Microwave Corporation.
3.1 Constitution. (Incorporated by reference to Exhibit 3.2 of the
Company's registration statement under the Securities Act of 1933
amended (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.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K for the three months ended
December 31, 1997.
Page 30
<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: February 13, 1998 /s/ Peter Wright
----------------------------------
Peter Wright
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 31
<PAGE>
EXHIBIT 11.1
MAS TECHNOLOGY LIMITED
STATEMENT RE: COMPUTATION OF NET INCOME PER ORDINARY SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31,
----------------------- --------------------
1996 1997 1996 1997
NZ$ NZ$ NZ$ NZ$
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income 391 2,537 552 6,155
======== ======== ======== ========
Ordinary shares used in share computation -
Weighted average number of ordinary shares outstanding 4,108 6,407 4,108 5,698
Diluted effect of:
1995 Share Scheme 91 370 67 366
1997 Stock Option Plan - 51 - 60
-------- -------- -------- --------
Shares used in computation 4,199 6,828 4,175 6,124
-------- -------- -------- --------
Diluted income per ordinary share and equivalent shares NZ$0.09 NZ$0.37 NZ$0.13 NZ$1.00
======== ======== ======== ========
THREE MONTHS NINE MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31,
----------------------- --------------------
1996 1997 1996 1997
NZ$ NZ$ NZ$ NZ$
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income 391 2,537 552 6,155
======== ======== ======== ========
Ordinary shares used in share computation -
Weighted average number of ordinary shares outstanding 4,108 6,408 4,108 5,698
-------- -------- -------- --------
Shares used in computation 4,108 6,408 4,108 5,698
-------- -------- -------- --------
Basic income per ordinary share and equivalent shares NZ$0.10 NZ$0.40 NZ$0.13 NZ$1.08
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER PERIOD ENDED DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> NEW ZEALAND DOLLAR
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-START> SEP-01-1997 APR-01-1997
<PERIOD-END> OCT-31-1997 DEC-31-1997
<EXCHANGE-RATE> 0.5803 0.5803
<CASH> 24,442 24,442
<SECURITIES> 6,300 6,300
<RECEIVABLES> 25,353 25,353
<ALLOWANCES> (143) (143)
<INVENTORY> 15,932 15,932
<CURRENT-ASSETS> 74,303 74,303
<PP&E> 2,803 2,803
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 78,424 78,424
<CURRENT-LIABILITIES> 19,378 19,378
<BONDS> 0 0
0 0
0 0
<COMMON> 45,636 45,636
<OTHER-SE> 13,410 13,410
<TOTAL-LIABILITY-AND-EQUITY> 59,046 59,046
<SALES> 23,326 62,747
<TOTAL-REVENUES> 23,326 62,747
<CGS> 13,847 39,053
<TOTAL-COSTS> 13,847 39,053
<OTHER-EXPENSES> 6,837 18,014
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 372 653
<INCOME-PRETAX> 3,864 9,426
<INCOME-TAX> 1,327 3,271
<INCOME-CONTINUING> 2,537 6,155
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,537 6,155
<EPS-PRIMARY> 0.40 1.08
<EPS-DILUTED> 0.37 1.00
</TABLE>
