UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the six month period ended: September 30, 1997
Commission File Number: 0-21908
MRS Technology, Inc.
(Exact name of registrant as specified in its charter.)
10 Elizabeth Drive, Chelmsford, MA 01824-4112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978)250-0450
Former name, former address, and former fiscal year, if changed since last
report: Not Applicable
Indicated 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 twelve months (or for such shorter period
that the registrant was required to file such reports), and 92) has been
subject to such filing requirements for the past 90 days.
YES (X) NO ( )
Applicable only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Outstanding as of
Class: November 10, 1997:
- ---------------------------- -----------------
Common Stock, par value $.01 6,836,552
<PAGE>
MRS Technology, Inc.
FORM 10-Q
For the six month period ended September 30, 1997
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1997 (Unaudited) and March 31, 1997
Consolidated Statements of Operations for the
Three months ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Operations for the
Six months ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the
Six months ended September 30, 1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<TABLE>
<CAPTION>
Part I Financial Information
Item 1. Financial Statements MRS Technology, Inc.
Consolidated Balance Sheets
Assets Sept 30, 1997
Current assets (Unaudited) March 31, 1997
<S> <C> <C>
Cash and cash equivalents $2,070,500 $3,290,982
Accounts receivable, net 1,831,083 1,978,994
Inventories 7,526,374 7,313,982
Deposits 245,989 169,730
Other current assets 196,123 102,605
- --------------------------------------------------------------------
Total current assets 11,870,069 12,856,293
Property and equipment, net 367,850 533,244
Other assets, net 31,934 37,979
- --------------------------------------------------------------------
Total assets $12,269,853 $13,427,516
====================================================================
<CAPTION>
Current liabilities
<S> <C> <C>
Accounts payable $1,323,027 $ 370,644
Accrued expenses 881,446 813,224
Current portion of obligations
under capital leases 9,649 11,096
Customer deposits 479,874 1,312,389
Other liabilities 193,371 49,746
- --------------------------------------------------------------------
Total current liabilities 2,887,367 2,557,099
Long-Term Debt 1,000,000 1,000,000
Long-term portion of obligations
under capital leases 0 0
- --------------------------------------------------------------------
Total liabilities 3,887,367 3,557,099
Stockholders' equity
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued and outstanding 6,808,165 and
6,776,355 shares respectively 68,082 67,763
Additional paid-in capital 36,409,284 36,383,258
Accumulated deficit (28,094,880) (26,580,604)
- --------------------------------------------------------------------
Total stockholders' equity 8,382,486 9,870,417
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $12,269,853 $13,427,516
====================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Sept. 30,
Revenue 1997 1996
<S> <C> <C>
Product $2,593,116 $3,231,735
Service and other 621,912 255,632
--------- ---------
Total revenue 3,215,028 3,487,367
Cost of revenue
Product 2,181,723 2,260,536
Service and other 227,000 440,617
--------- ---------
Total cost of revenue 2,408,723 2,701,153
Gross margin 806,305 786,214
Operating expenses:
Research and development 578,280 721,503
Selling, general and administrative 604,880 687,550
--------- ---------
Loss from operations (376,855) (622,839)
Interest income, net 33,906 28,281
Interest expense 27,572 185
Other (expense), net (13,201) 0
--------- ---------
Loss before provision for
income taxes (383,722) (594,743)
- ---------------------------------------------------------------------
Net loss ($383,722) ($594,743)
=====================================================================
Net loss per share ($0.06) ($0.09)
Weighted average number of common
shares outstanding (000's) 6,805 6,718
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Six months ended Sept. 30,
Revenue 1997 1996
<S> <C> <C>
Product $2,593,116 $ 4,106,884
Service 1,039,468 512,603
Contract research 0 578,483
--------- ---------
Total revenue 3,632,584 5,197,970
Cost of revenue
Product 2,414,224 2,884,484
Service 539,200 732,410
Contract research 0 578,493
--------- ---------
Total cost of revenue 2,953,424 4,195,387
Gross margin 679,160 1,002,583
Operating expenses:
Research and development 1,096,304 1,495,815
Selling, general and administrative 1,111,082 1,454,845
--------- ---------
Loss from operations (1,528,226) (1,948,077)
Interest income, net 74,757 74,259
Interest expense 50,726 389
Other (expense), net (10,080) (816)
---------- ---------
Loss before provision for
income taxes (1,514,275) (1,875,023)
- ---------------------------------------------------------------------
Net loss ($1,514,275) ($1,875,023)
=====================================================================
Net loss per share ($0.22) ($0.28)
Weighted average number of common
shares outstanding (000's) 6,781 6,702
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six month periods ended Sept. 30,
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net loss ($1,514,628) ($1,875,023)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 200,040 375,720
Amortization 0 1,116
Changes in assets and liabilities
Accounts receivable 147,911 (1,483,273)
Inventories (212,392) 1,152,172
Deposits and other assets (169,777) (113,428)
Accounts payable 952,383 (1,068,022)
Accrued expenses 68,222 (179,036)
Customer deposits from other (832,515) 1,032,515
Other current liabilities 143,625 9,054
- -------------------------------------------------------------------------
Net cash used in operating activities (1,217,131) (2,148,205)
Cash flows from investing activities
Capital expenditures (28,566) (40,070)
- -------------------------------------------------------------------------
Net cash used in investing activities (28,566) (40,070)
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 0 32,556
Proceeds from employee stock option
exercise 26,662 43,925
Principal payments under capital
lease obligations (1,447) (484)
-----------------------------------------------------------------------
Net cash provided by financing activities 25,215 75,997
Net decrease in cash & equivalents (1,220,482) (2,112,278)
Cash and cash equivalents at beginning
of period 3,290,982 4,217,880
Cash and cash equivalents at end
of period $ 2,070,500 $ 2,105,602
=========================================================================
Supplemental cash flow information
Interest paid $50,726 $389
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
MRS Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories consist of the following as of September 30, 1997 and March
31, 1997:
<TABLE>
<CAPTION>
(In Thousands) September 30, 1997 March 31, 1997
<S> <C> <C>
Purchased parts $ 986 $ 941
Work in process 6,540 5,647
Finished Goods 0 726
------ ------
$7,526 $7,314
</TABLE>
2. Net Loss Per Common Share
Net loss per common share for the three and six months ended September 30,
1997 and September 30, 1996 are computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not
included in loss periods as their effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective
for fiscal years ending after December 15, 1997, including interim
periods. SFAS 128 requires the presentation of basic and diluted earnings
per share (EPS). Basic EPS, which replaces primary EPS, excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS under the existing rules. SFAS 128 requires restatement of
all prior period earnings per share data presented after the effective
date. The Company will adopt SFAS 128 for the fiscal year ending March
31, 1998. If the standard had been adopted in the second quarter there
would have been no significant impact on earnings per share for the three
and six month periods ended September 30, 1997.
3. Litigation
In July 1996, the Company sold a PanelPrinter to Micron Display
Technology, Inc., an Idaho corporation ("MDT"). The first three payments,
totaling $1,032 million were made on schedule. Remaining payments due
under the sales contract were not made, and after negotiations with MDT
proved fruitless, on January 24, 1997, MDT commenced legal proceedings
alleging defects in the PanelPrinter and seeking damages.
The litigation was settled in July of 1997 pursuant to a confidential
settlement agreement between the parties and the legal proceedings were
terminated. The settlement did not result in any significant adverse
impact to the Company's financial position, results of operations or cash
flows.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 ("the Act") provides
a "safe harbor" for forward-looking statements so long as those statements
are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement.
The Company desires to take advantage of the "safe harbor" provisions of
the Act. Certain information contained herein, particularly the
information appearing under the headings "Business Development," "Results
of Operations," "Liquidity and Capital Resources" and "Factors Affecting
Future Results" are forward-looking. Information regarding certain
important factors that could cause actual results of operations or
outcomes of other events to differ materially from any such forward-
looking statement appear together with such statement, and/or elsewhere
herein. The Company assumes no obligation to update the information
contained herein.
Business Development
During fiscal 1997, demand for the Company's products continued to decline
due to over capacity in certain active matrix liquid crystal display
(AMLCD) markets. The Company still, at the start of fiscal 1997, expected
a slight improvement in product sales as the Company had prospects
principally in Asia, and to a lesser extent the U.S., that planned to
purchase tools for R&D and pilot AMLCD lines. Existing orders were
shipped as planned, however, the collapse of the dynamic random access
memory (DRAM) prices in the Company's second fiscal quarter of fiscal 1997
resulted in customers and prospects in Asia delaying upgrades and the
purchase of new machines.
Demand in the AMLCD market is increasing and the Company has refocused its
sales and marketing efforts on the Asian market with a focus on the Korean
market. The Company believes that this market offers the most significant
opportunities for the Company's products. However, the extent and timing
of MRS' penetration of this market are not known.
The Company is currently working on several initiatives. The most
significant of these is the contract awarded by the United States Display
Consortium (USDC). This contract is for the development of an advanced
large area high-throughput step and repeat imaging tool.
RESULTS OF OPERATIONS
TOTAL REVENUE
Total revenue for the three month periods ended September 30, 1997 and
1996 was approximately $3.2 million and $3.5 million, respectively, a
decrease of $0.3 million. For the six month periods ended September 30,
1997 and 1996 total revenue was $3.6 and $5.2 million, respectively.
Total revenue for the first half decreased $1.6 million.
Product revenue for the three month periods ended September 30, 1997 and
1996, was $2.6 million and $3.2 million, respectively a decrease of $0.6
million quarter to quarter. Product revenue for the first half of fiscal
1998 decreased by $1.5 million from $4.1 million during the first half of
fiscal 1997 to $2.6 million. This decrease is due to configuration
differences on PanelPrinters sold in each period and the final settlement
of litigation surrounding the sale of a PanelPrinter in the second quarter
of fiscal 1998 at a settlement price below normal product pricing (See
Note 3 to Notes to Consolidated Financial Statements). The decrease was
offset by revenue generated from a contract entered into with the United
States Display Consortium ("USDC") in fiscal 1998. This contract was
entered into for the research, development and manufacture of an advanced
large area high-throughput step and repeat imaging tool. Under the
contract, MRS and USDC will share in the cost of the new imaging tool,
which will be delivered to a customer of the USDC at the end of the
contract.
Service revenue for the three month periods ended September 30, 1997 and
1996 was $0.6 million and $0.2 million, respectively. The revenue for the
first six month periods ended September 30, 1997 and 1996 was $1.0 million
and $0.5 million, respectively. This $0.4 million increase for the three
month period and the $0.5 million increase for the six month period were
due to the growing parts and service contract business as customer
machines have come off warranty.
GROSS MARGIN
Gross margin as a percentage of total revenue was 25% and 23% for the
three month periods ended September 30, 1997 and 1996, respectively and
was 19% for the six month periods ended September 30, 1997 and 1996. The
increase in gross margin for the three month period was primarily due to
increased service revenue which brings a higher gross margin than product
revenue.
OPERATING EXPENSES
Research and development expenses for the three month periods ended
September 30, 1997 and 1996 were $0.6 million and $0.7 million,
respectively. Aggregate research and development spending before
allocation to product revenue was $0.9 million and $0.7 million for the
same quarterly periods. This $0.2 million decrease in spending for the
three month period was primarily due to lower level of consultants and
payroll, a result of the headcount reductions taken in January 1997. For
the six month periods ended September 30, 1997 and 1996 research and
development expenses were $1.1 and $1.5 million, respectively. Aggregate
research and development spending before allocation to cost of product
revenue was $1.4 million and $2.0 million, respectively. The $0.4 million
decrease for the six month period was also attributable to the headcount
reductions taken in January 1997.
Selling, general and administrative expenses for the three month periods
ended September 30, 1997 and 1996 were $0.6 million and $0.7 million,
respectively. For the six month periods ended September 30, 1997 and 1996
expenses were $1.1 million and $1.5 million, respectively. The decrease
in both the three and six month periods is attributable to the
reallocation of resources in the Company's Japan operations from sales and
marketing to service in fiscal 1998 to support the Company's increased
service business as well as the headcount reductions taken in January
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at September 30, 1997 of $2.1
million, a decrease of $1.2 million from the March 31, 1997 balance of
$3.3 million. The decrease in cash is primarily due to the loss from
operations in the first half of fiscal 1997.
Under the terms of the Company's sale of its ownership interest in
EBETECH, the Company is jointly and severally liable for any claims under
an indemnification clause up to a maximum of $583,333 at September 30,
1997. If certain assets of the Company, net of certain liabilities, fall
below a minimum amount, the Company is required to place in escrow an
amount up to the maximum liability under the indemnification clause. The
amount of potential escrow decreases quarterly through the indemnification
period which ends in September 1998.
In addition, the Company requires significant working capital to support
its research and development efforts and to meet its ongoing production,
selling and general and administrative costs.
In March 1997, the Company entered into a three year asset-based revolving
line of credit agreement which provides for borrowings of up to $4.0
million based on accounts receivable and inventory balances. The line of
credit requires a minimum outstanding balance of $1.0 million and as of
September 30, 1997 the Company had an outstanding balance of $1.0 million.
Historically, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available
under its line of credit; as of November 6, 1997, approximately $1.0
million was available under the line of credit. The Company believes
these resources are sufficient to meet its working capital needs and
future obligations through fiscal 1998.
The Company continues to actively pursue potential customer orders for its
existing products. Additionally, the Company is actively seeking
strategic relationships with companies which would enhance its ability to
commercialize the technology it has developed, strengthen its balance
sheet and maximaze its long-term success. The specific types of
relationships under consideration include joint ventures, research
contracts, equipment purchase commitments, or any combination thereof.
FACTORS AFFECTING FUTURE RESULTS
The ability of the Company to attain the financial or other results that
may be planned, forecasted or projected from time to time is subject to a
number of factors, including the ability to obtain new orders and the
timing of recording the related revenue, the ability to develop and
manufacture new products, the ability to respond to competitive technology
and pricing pressures, adequate availability of major components, and the
ability to maintain key employees for hardware, software, motions and
imaging technicians. In addition, the Company has historically been
dependent upon a limited number of markets and geographic areas to sell
its product, the PanelPrinter, therefore the Companys financial position
and results of operations may be impacted by economic and market
conditions in the markets and regions into which it sells its products.
PanelPrinters and optional equipment generally have ranged in price from
$1.8 to $2.7 million and any delay in revenue recognition or cancellations
of an order would adversely effect the Company's results of operations,
cash flows, or both. Fluctuations in product revenues, and consequently
quarterly net income or loss, are largely related to revenue recognition
on sales of PanelPrinter units. In addition, the process for turning
prospects into firm orders, coupled with the production lead time, may
result in a lengthy selling process.
Historically a significant portion of the Comany's revenue was derived
from research and development contracts. The most significant portion of
the Company's historical research and development efforts and development
of new technologies to enhance its products have been funded by these
contracts. The Company's ability to continue to develop new technologies
is dependent upon the Company's ability to internally fund its research
and development efforts or to enter into additional research and
development arrangements funded by third parties.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective
for fiscal years ending after December 15, 1997, including interim
periods. SFAS 128 requires the presentation of basic and diluted earnings
per share (EPS). Basic EPS, which replaces primary EPS, excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS under the existing rules. SFAS 128 requires restatement of
all prior period earnings per share data presented after the effective
date. The Company will adopt SFAS 128 for the fiscal year ending March
31, 1998. If the standard had been adopted in the second quarter there
would have been no significant impacton earnings per share for the three
and six month periods ended September 30, 1997.
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, authorized officers.
MRS Technology, Inc.
Date: November 10, 1997 /s/Griffith L. Resor, III
Griffith L. Resor, III
President, CEO and Director
(Principal Executive Officer)
Date: November 10, 1997 /s/ Patricia F. DiIanni
Patricia F. DiIanni
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended March 31, 1997.
</LEGEND>
<CIK> 0000906768
<NAME> MRS TECHNOLOGY, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,070,500
<SECURITIES> 0
<RECEIVABLES> 1,852,128
<ALLOWANCES> 21,045
<INVENTORY> 7,526,374
<CURRENT-ASSETS> 11,870,069
<PP&E> 3,942,129
<DEPRECIATION> 3,574,278
<TOTAL-ASSETS> 12,269,853
<CURRENT-LIABILITIES> 2,887,367
<BONDS> 0
0
0
<COMMON> 68,082
<OTHER-SE> 8,314,404
<TOTAL-LIABILITY-AND-EQUITY> 12,269,853
<SALES> 2,593,116
<TOTAL-REVENUES> 3,632,584
<CGS> 2,414,224
<TOTAL-COSTS> 2,953,424
<OTHER-EXPENSES> 10,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,726
<INCOME-PRETAX> (1,514,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,514,275)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
