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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended July 6, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-23418
MTI TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3601802
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4905 East La Palma Avenue
Anaheim, California 92807
- --------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (714) 970-0300
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
----- -----
The number of shares outstanding of the issuer's common stock, $.001 par
value, as of August 9, 1996 was 25,556,886.
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MTI TECHNOLOGY CORPORATION
- --------------------------
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at July 6,
1996 and April 6, 1996 3
Condensed Consolidated Statements of Operations for
the Three Months Ended July 6, 1996 and July 1, 1995 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended July 6, 1996 and July 1, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 6, APRIL 6,
1996 1996
-------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,822 $ 4,055
Accounts receivable, net 24,224 21,101
Inventories 15,811 21,499
Deferred income tax benefit 784 784
Prepaid expenses and other receivables 4,578 3,750
-------- --------
Total current assets 49,219 51,189
Property, plant and equipment, net 15,231 16,323
Intangible assets and goodwill, net 15,393 15,852
Other 621 659
-------- --------
$ 80,464 $ 84,023
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 26,934 $ 20,613
Current maturities of long-term debt 3,581 8,297
Accounts payable 8,221 14,580
Accrued liabilities 16,402 18,724
Deferred income 12,986 14,941
-------- --------
Total current liabilities 68,124 77,155
Long-term debt, less current maturities 1,061 5,966
Deferred income 432 550
Other 14 539
-------- --------
Total liabilities 69,631 84,210
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value; authorized
5,000 shares; issued and outstanding, none - -
Common stock, $.001 par value; authorized
40,000 shares; issued and outstanding
25,526 and 20,243 shares at July 6 and
April 6, 1996, respectively 26 20
Additional paid-in capital 88,151 77,762
Accumulated deficit (73,188) (73,645)
Less cost of treasury stock (794 shares at
July 6 and April 6, 1996) (2,938) (2,938)
Cumulative foreign currency translation
adjustments (1,218) (1,386)
-------- --------
Total stockholders' equity (deficiency) 10,833 (187)
-------- --------
$ 80,464 $ 84,023
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
JULY 6, JULY 1,
1996 1995
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<S> <C> <C>
Net product revenue $27,604 $ 24,777
Service revenue 8,573 8,775
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Total revenue 36,177 33,552
Product cost of revenue 20,059 17,591
Service cost of revenue 4,992 5,036
------- --------
Total cost of revenue 25,051 22,627
Gross profit 11,126 10,925
------- --------
Operating expenses:
Selling, general and administrative 8,578 10,750
Research and development 2,291 3,458
------- --------
Total operating expenses 10,869 14,208
Operating income (loss) 257 (3,283)
Other income (expense), net 200 (652)
------- --------
Income (loss) before income taxes 457 (3,935)
Income tax expense - 322
------- --------
Net income (loss) $ 457 $ (4,257)
======= ========
Income (loss) per common and common
equivalent share $ 0.02 $ (0.22)
======= ========
Weighted average common and common
equivalent shares 26,136 19,351
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JULY 6, JULY 1,
1996 1995
------- --------
<S> <C> <C>
Net cash used in operating activities $ (5,568) $ (7,226)
-------- --------
Cash flows from investing activities:
Capital expenditures for property, plant
and equipment, net (700) (2,412)
Disposal of property, plant and equipment - 77
Acquisition of NPI assets and liabilities,
net of cash acquired - (2,608)
-------- --------
Net cash used in investing activities (700) (4,943)
-------- --------
Cash flows from financing activities:
Borrowings under notes payable, net of acquisitions 30,747 33,684
Borrowings under notes payable to fund acquisition
of NPI - 2,608
Proceeds from issuance of common stock and
exercise of options and warrants 142 121
Repayment of notes payable (24,697) (25,358)
-------- --------
Net cash provided by financing activities 6,192 11,055
-------- --------
Effect of exchange rate changes on cash (157) 116
-------- --------
Net decrease in cash and cash equivalents (233) (998)
Cash and cash equivalents at beginning of period 4,055 5,562
-------- --------
Cash and cash equivalents at end of period $ 3,822 $ 4,564
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 763 $ 716
Income taxes 77 214
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MTI TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim condensed consolidated financial statements included herein
have been prepared by MTI Technology Corporation (the "Company") without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures, normally included
in the financial statements prepared in accordance with generally accepted
accounting principles, have been omitted pursuant to such SEC rules and
regulations; nevertheless, the management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
April 6, 1996. In the opinion of management, the condensed consolidated
financial statements included herein reflect all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the condensed
consolidated financial position of the Company as of July 6, 1996, and the
condensed consolidated results of operations and cash flows for the three month
periods ended July 6, 1996 and July 1, 1995. The results of operations for the
interim periods are not necessarily indicative of the results of operations for
the full year. References to amounts are in thousands, except share and per
share data, unless otherwise specified.
2. Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 6, APRIL 6,
1996 1996
------- -------
<S> <C> <C>
Raw Materials $ 8,555 $13,090
Work in Process 438 2,106
Finished Goods 6,818 6,303
------- -------
$15,811 $21,499
======= =======
</TABLE>
3. During July 1994, the Company and certain directors and officers were
served with four purported stockholder class-action lawsuits alleging certain
improprieties surrounding the April 1994 initial public offering and subsequent
decrease in the Company's stock price. Subsequently, these four actions were
consolidated into a single case (In re MTI Technology Securities Litigation) in
the United States District Court, Central District of California. This
litigation was a class action complaint for alleged violation of the federal
securities laws. Plaintiffs sought compensatory damages and other relief as
permitted by applicable law. The claims related to the Company's initial
public offering in April 1994 and the Company's announcements for financial
results for the quarter ended July 2, 1994.
In March 1996, the Company agreed to settle with plaintiffs. A
Memorandum of Understanding was signed providing for a total settlement amount
of $5,500, and the Claims Receipt and Policy Release agreement became effective
March 29, 1996. The Company's unreimbursed portion of the aggregate settlement
was $1,655. Preliminary approval for the settlement was granted by the Court
on June 3, 1996, and final approval for the settlement was granted by the Court
on August 5, 1996.
4. On July 19, 1995, the Company entered into an agreement (the
"Agreement"), whereby it received a loan of approximately $10,000 from NFT
Ventures II, LLC ("NFT V2"), an entity affiliated with the Company's major
stockholder and Chairman of the Board. Pursuant to the loan agreement, the
Company issued a long-term, secured subordinated note to NFT V2, which bore
annual interest of 10.75% and was repayable in two equal installments, the
first installment being due and payable in January 1997, the second in July
1997. Pursuant to the terms of the agreement, the note was convertible at the
lender's option into common stock of the Company 90 days after the date of the
agreement at a price per common
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share equal to the then fair market value of such stock. Proceeds from the
loan are being used for working capital purposes.
During the second quarter of fiscal 1996, the Company entered into an
agreement with NFT V2, whereby, pursuant to the terms of the agreement, the
Company licensed certain software products to NFT V2 for commercial use and
resale. As consideration for the licenses, the Company received a $650 credit
against amounts owing to NFT V2 under the Agreement and has access to certain
product enhancements to be developed by NFT V2.
On April 11, 1996, NFT V2 exercised its right to convert current principal
and accrued interest outstanding of $10,113 into 5,992,665 common shares of the
Company.
5. Effective April 7, 1996, the Company entered into an agreement with NFT
Ventures, Inc. ("NFT"), an entity affiliated with the Company's major
stockholder and Chairman of the Board, whereby NFT will provide the Company
with up to $2,400 of non-refundable research and development funding based on
actual research and development expenses incurred in connection with new and
enhanced Backup-UNET software products, the RLM software Products Group and the
Open Media Products Group. The funding payments will be received in
essentially four equal quarterly installments of approximately $600 each, the
first of which will be received within ten days of submission by the Company of
a statement setting forth the amount and description of the applicable research
and development expenses incurred during the first quarter of fiscal 1997, the
remaining installments within ten days of submission of a statement of incurred
expenses for each of the next three successive quarters. The consideration NFT
will receive for the funding includes: (a) an irrevocable, worldwide,
nonexclusive license to develop, market and sell certain defined new or
substantially enhanced software products developed by the Company; (b) royalty
payments based on the revenue recognized by the Company from sale of the
defined software products that are sold within four years of the effective date
of the agreement; and, (c) subject to stockholder approval, warrants to
purchase 750,000 shares of the Company's stock with an exercise price of $2.25
per share. The warrants expire on June 27, 2001.
6. Net income (loss) per common and common equivalent share was computed
based on the weighted average number of common and common equivalent shares
outstanding during the periods presented. The Company has granted certain
stock options which have been treated as common equivalents in computing both
primary and fully diluted income (loss) per share, except in those periods
where such inclusion would be antidilutive. The primary and fully dilutive
income (loss) per share computations are approximately the same.
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PART 1 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
MTI's historic revenues have been achieved through introductions of
new or updated products, expansion of the Company's international operations,
and through acquisitions. The Company has attempted to increase its focus on
expanding its software, systems and service offerings for the Open Systems
computing environment and decrease its historic dependence on sales and service
from Digital Equipment Corporation ("DEC") computing environment. Revenue from
product sales to the Open Systems marketplace increased from less than 10% for
fiscal 1994, to approximately 21% for fiscal 1995, to approximately 43% for
fiscal 1996, and to approximately 69% for the first quarter of fiscal 1997.
In January 1995, the Company acquired certain assets, including
intellectual properties and source code rights, of the UNIX and Open VMS
storage management software product lines of Raxco, Inc. ("Raxco"). The
purchase price of the acquired assets consisted of $1.0 million in cash, notes
in the amount of $2.5 million, assumption of $1.9 million of certain
liabilities, primarily deferred service maintenance contracts, and the issuance
of warrants to purchase 250,000 shares of the Company's common stock at a price
of $6.00 per share. The warrants will expire on December 31, 1999. As part of
the transaction the Company also acquired software development and technical
support teams located domestically and in the United Kingdom. In addition, the
Company acquired access to the existing Raxco storage management software
customer base.
Effective April 2, 1995, the Company acquired National Peripherals,
Inc. ("NPI"), a privately-held provider of cross-platform RAID based storage
solutions for the Open Systems computing environment. Consideration paid in
the NPI acquisition included: (a) payments of $2.6 million in cash to NPI and
its stockholders, (b) promissory notes in the aggregate amount of $2.0 million
bearing 6% interest per annum and payable in two equal annual installments
beginning April 1996, (c) guaranteed earnout payments in the aggregate amount
of $3.0 million and payable in three equal annual installments beginning in
April 1996, and (d) acquisition costs of $0.4 million. In addition, the
acquisition agreement provides for contingent payments of up to $1.0 million
payable in April 1998 based on certain performance criteria. As a result of
the NPI acquisition, MTI increased its presence in the Open Systems marketplace
by adding approximately 18 salespeople at the time of acquisition who were
exclusively focused on Open Systems sales opportunities.
The Raxco and NPI acquisitions are part of the Company's strategy to
expand its product lines and increase revenue from the non-DEC marketplace, and
to heighten emphasis on the Company's software product development efforts.
Effective February 9, 1996, the Company entered into an agreement with
EMC Corporation ("EMC"), whereby the Company sold to EMC substantially all of
the Company's existing patents, patent applications and rights thereof. The
consideration the Company will receive for these rights includes: (a) $30.0
million to be received in six equal annual installments of $5.0 million, the
first of which was received upon closing of the agreement on February 9, 1996,
the remaining payments to be received beginning January 1997 and in each of the
subsequent four years; and (b) royalty payments in the aggregate of up to a
maximum of $30.0 million over the term of the agreement, of which a minimum of
$10.0 million will be received in five annual installments, beginning within
thirty days of the first anniversary of the effective date of the agreement,
and within thirty days of each subsequent anniversary thereof. In addition,
the Company also received an irrevocable, non-cancelable, perpetual and
royalty-free license to exploit, market and sell the technology protected under
the aforementioned patents. Pursuant to the terms and conditions of the
agreement, this license will terminate in the event of a change of control of
the Company involving certain identified acquirors. As part of the agreement,
the Company and EMC granted to each other the license to exploit, market and
sell the technology associated with each of their
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respective existing and future patents arising from any patent applications in
existence as of the effective date of the agreement for a period of five years.
Effective April 7, 1996, the Company entered into an agreement with NFT
Ventures, Inc. ("NFT"), an entity affiliated with the Company's major
stockholder and Chairman of the Board, whereby NFT will provide the Company
with up to $2.4 million of non-refundable research and development funding
based on actual research and development expenses incurred in connection with
new and enhanced Backup-UNET software products, the RLM Software Products Group
and the Open Media Products Group. The funding payments will be received in
essentially four equal quarterly installments of approximately $0.6 million
each, the first of which will be received within ten days of submission by the
Company of a statement setting forth the amount and description of the
applicable research and development expenses incurred during the first quarter
of fiscal 1997, the remaining installments within ten days of submission of a
statement of incurred expenses for each of the next three successive quarters.
The consideration NFT will receive for the funding includes: (a) an
irrevocable, worldwide, nonexclusive license to develop, market and sell
certain defined new or substantially enhanced software products developed by
the Company; (b) royalty payments based on the revenue recognized by the
Company from sale of the defined software products that are sold within four
years of the effective date of the agreement; and, (c) subject to stockholder
approval, warrants to purchase 750,000 shares of the Company's stock with an
exercise price of $2.25 per share. The warrants expire on June 27, 2001.
The Company has experienced significant quarterly fluctuations in
operating results and anticipates that these fluctuations may continue in the
future. These fluctuations have been and may continue to be caused by a number
of factors, including competitive pricing pressures, the timing of customer
orders (a large majority of which have historically been placed in the last
month of each quarter), the introduction of new versions of the Company's
products, and the timing of sales and marketing and research and development
expenditures. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop
innovative products, the introduction of new products by the Company's
competitors and decreases in gross profit margin for mature products. There
can be no assurance that the Company will be profitable on a quarter-to-quarter
or annual basis.
The Company has operated historically without a significant backlog of
orders and, as a result, net product revenue in any quarter is dependent on
orders booked and products shipped during that quarter. A significant portion
of the Company's operating expenses are relatively fixed in nature and planned
expenditures are based primarily on sales forecasts. If revenue does not meet
the Company's expectations in any given quarter, the adverse impact on the
Company's liquidity position and net income may be magnified by the Company's
inability to reduce expenditures quickly enough to compensate for the revenue
shortfall. Further, as is common in the computer industry, the Company
historically has experienced an increase in the number of orders and shipments
in the latter part of each quarter and the Company expects this pattern to
continue in the future. The Company's failure to receive anticipated orders or
to complete shipments in the latter part of a quarter could have a material
adverse effect on the Company's results of operations for that quarter.
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RESULTS OF OPERATIONS
The following table sets forth selected items from the Condensed
Consolidated Statements of Operations as a percentage of net revenues for the
periods indicated, except for product gross profit and service gross profit,
which are expressed as a percentage of the related revenue. This information
should be read in conjunction with the Condensed Consolidated Financial
Statements included elsewhere within:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
JULY 6, JULY 1,
1996 1995
------ ------
<S> <C> <C>
Net product revenue 76.3% 73.8%
Service revenue 23.7 26.2
------ -----
Total revenue 100.0 100.0
Product gross profit 27.3 29.0
Service gross profit 41.8 42.6
------ -----
Gross profit 30.8 32.6
Selling, general and
administrative expenses 23.8 32.1
Research and development 6.3 10.3
------ -----
Operating income (loss) 0.7 (9.8)
Other income (expense), net 0.6 (1.9)
Income tax expense - 1.0
------ -----
Net income (loss) 1.3% (12.7)%
====== =====
</TABLE>
Net Product Revenue: Net product revenue increased $2.8 million, or 11.4% over
the same quarter of the prior year. This increase was primarily due to
increased revenue of $2.7 million from optical/tape products, primarily the
mid-range 1500 series of automated DLT tape libraries. In addition, software
revenue and server revenue increased $0.5 million and $0.4 million,
respectively, over the same period of the prior year. These increases were
partially offset by decreased sales of $0.8 million to Boeing Information
Services, Inc. relating to Boeing's RCAS contract with the federal government.
The RCAS program has ended.
Service Revenue: Service revenue decreased $0.2 million, or 2.3% from the same
quarter of the prior year. This decrease is primarily due to fewer
post-warranty service contracts sold as a result of lower product revenues from
the DEC market from the same period of the prior year.
Product Gross Profit: Product gross profit was $7.5 million for the first
quarter of fiscal 1997, an increase of $0.4 million, or 5.0% over the same
quarter of the preceding year, and the gross profit percentage of net product
sales was 27% for the first quarter of fiscal 1997 as compared to 29% for the
same period of the prior year. The decrease in the gross profit percentage was
primarily due to the higher mix of Open Systems product revenues, which carry a
lower margin percentage.
Service Gross Profit: Service gross profit was $3.6 million, a decrease of
$0.2 million, or 4.2% from the first quarter of the prior year. The gross
profit percentage of service revenue decreased to 42% in the first quarter of
fiscal 1997 from 43% in the same quarter of the preceding year. The decrease
in the gross profit percentage was primarily a result of reduced service
revenue supported by substantially the same cost structure.
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Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the first quarter of fiscal 1997 decreased $2.2
million, or 20.2% from the same quarter of the preceding year. This decrease
was primarily due to reduced payroll and related expenses of approximately $0.7
million as a result of restructuring actions begun in the fourth quarter of
fiscal 1996 and completed in the first quarter of fiscal 1997, decreased
goodwill amortization of $0.5 million due to the write-off of goodwill in the
fourth quarter of fiscal 1996, decreased legal expense of $0.4 million,
primarily as a result of the settlement of shareholder litigation, and
reductions in other expense categories of $0.6 million.
Research and Development Expenses: Research and development expenses for the
first quarter of fiscal 1997 decreased $1.2 million, or 33.8% from the same
quarter of the preceding year. This decrease was primarily due to reduced
payroll and related expenses of approximately $0.8 million as a result of the
aforementioned restructuring actions, and non-refundable research and
development funding of $0.4 million.
Other Income (Expense), Net: Other income, net, increased $0.9 million, or
130.7% over the same period of the prior year. This increase was primarily due
to $1.2 million of income recognized on the sale of substantially all of the
Company's existing patents, patent applications and rights thereof to EMC
Corporation ("EMC"), in February 1996. This increase was partially offset by
increased interest expense of $0.3 million related to increased bank line
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $3.8 million at July 6, 1996, a decrease of
$0.2 million as compared to April 6, 1996, the prior fiscal year end. Net
operating activities used $5.6 million in the first quarter of fiscal 1997,
primarily due to an increase in accounts receivable of $3.1 million as a result
of increased revenues and a decrease in accounts payable and accrued
liabilities of $8.7 million primarily due to reduced trade purchases, partially
offset by decreased inventories of $5.7 million. Cash provided by financing
activities was $6.2 million, primarily as a result of increased bank line
borrowings.
The Company's average days outstanding were 61 days at the end of the
first quarter of fiscal 1997, as compared to 60 days at the end of the same
quarter of fiscal 1996.
Stockholders' equity at the end of the first quarter of fiscal 1997 was
$10.8 million as compared to $(0.2) million at the end of fiscal 1996. The
increase was primarily due to the conversion on April 11, 1996, of $10.1
million of outstanding debt principal and accrued interest into approximately
6.0 million shares of common stock pursuant to the terms and conditions of a
loan agreement between the Company and the lender, an entity affiliated with
the Company's major stockholder and Chairman of the Board.
On March 31, 1995, the Company entered in to an agreement whereby the
Company had available asset secured bank lines of credit of up to $20.0
million, limited by the value of the pledged collateral which consists of the
Company's accounts receivable and inventories. In May 1996, the agreement was
amended to increase the line of credit to $30.0 million as a result of a
collateralized guarantee made to the bank by an affiliate of NFT, an entity
affiliated with the Company's major stockholder and Chairman of the Board. At
July 6, 1996, borrowings outstanding under this agreement were $26.9 million.
At August 9, 1996, the outstanding balance under this line was approximately
$25.5 million. The bank line of credit contains certain restrictive covenants.
At July 6, 1996, the Company was in compliance with all such covenants.
Effective February 9, 1996, the Company entered into an agreement with
EMC, whereby the Company sold to EMC substantially all of the Company's
existing patents, patent applications and rights thereof. The consideration
the Company will receive for these rights include: (a) $30.0 million to be
received in six equal annual installments of $5.0 million each, the first of
which was received upon closing of the agreement on February 9, 1996, the
remaining payments to be received beginning January
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1997 and in each of the subsequent four years; and (b) royalty payments in the
aggregate of up to a maximum of $30.0 million over the term of the agreement,
of which a minimum of $10.0 million will be received in five annual
installments, beginning within thirty days of the first anniversary of the
effective date of the agreement, and within thirty days of each subsequent
anniversary thereof.
Effective April 7, 1996, the Company entered into an agreement with NFT
whereby NFT will provide the Company with up to $2.4 million of non-refundable
research and development funding based on actual research and development
expenses incurred in connection with new and enhanced Backup-UNET software
products, RLM Software Products Group, and the Open Media Products Group. The
funding payments will be received in essentially four equal quarterly
installments of approximately $0.6 million each, the first of which will be
received within ten days of submission by the Company of a statement setting
forth the amount and description of the applicable research and development
expenses incurred during the first quarter of fiscal 1997, the remaining
installments within ten days of submission of a statement of incurred expenses
for each of the next three successive quarters.
Management believes that the Company's working capital, bank lines of
credit and cash flow from operating activities will be sufficient to meet the
Company's operating and capital expenditure requirements for the next twelve
months; however, in the longer term, the Company may require additional funds
to support its working capital requirements including financing of accounts
receivable and inventory, or for other purposes, and may seek to raise such
funds through public or private equity financing, bank lines of credit or from
other sources. No assurance can be given that additional financing will be
available or that, if available, will be on terms favorable to the Company.
12
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PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
During July 1994, the Company and certain directors and officers were
served with four purported stockholder class-action lawsuits alleging certain
improprieties surrounding the April 1994 initial public offering and subsequent
decrease in the Company's stock price. Subsequently, these four actions were
consolidated into a single case (In re MTI Technology Securities Litigation) in
the United States District Court, Central District of California. This
litigation was a class action complaint for alleged violation of the federal
securities laws. Plaintiffs sought compensatory damages and other relief as
permitted by applicable law. The claims related to the Company's initial
public offering in April 1994 and the Company's announcements for financial
results for the quarter ended July 2, 1994.
In March 1996, the Company agreed to settle with plaintiffs. A
Memorandum of Understanding was signed providing for a total settlement amount
of $5.5 million, and the Claims Receipt and Policy Release agreement became
effective March 29, 1996. The Company's unreimbursed portion of the aggregate
settlement was $1.7 million. Preliminary approval for the settlement was
granted by the Court on June 3, 1996, and final approval for the settlement was
granted by the Court on August 5, 1996.
ITEM 5 - OTHER INFORMATION
- --------------------------
On August 12, 1996, the Company agreed with NFT Ventures, Inc. ("NFT"),
an entity affiliated with the Company's major stockholder and Chairman of the
Board, to enter into a joint venture, to be in the form of a limited liability
corporation (the "LLC"). The initial business purpose of the LLC will be the
design and development of RAID-based data storage systems that will work across
multiple operating environments.
Pursuant to the terms of the agreement, the Company will contribute
assets to the LLC valued at approximately $1.3 million in the exchange for a
19% ownership interest. NFT will provide operating capital to the LLC for a
period of two years from the effective date of the agreement, up to an
aggregate of $6.8 million and will hold an 81% ownership interest.
The Company will grant the LLC a license to certain intellectual property
rights owned or licensed by the Company relating to the products to be
developed by the LLC, including a limited, non-exclusive right to market and
sell such products. The Company will retain the exclusive right (with the
exception of those rights granted to the LLC) to market, sell, distribute, and
license such products in exchange for royalty payments to be made to the LLC
based on the revenue realized by the Company from the sale or license of the
products.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed a report on Form 8-K dated April 8, 1996, regarding the
conversion of debt to common stock and changes in senior management of the
Company.
13
<PAGE> 14
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, on the 15th day of August 1996.
MTI TECHNOLOGY CORPORATION
By: /s/ DALE R. BOYD
----------------------------------
Dale R. Boyd
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
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