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 quarterly period ended: June 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: (508)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 (2) 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: August 6, 1997:
- ---------------------------- -----------------
Common Stock, par value $.01 6,807,215
<PAGE>
MRS Technology, Inc.
FORM 10-Q
For the three-month period ended June 30, 1997
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 1997 (Unaudited) and March 31, 1997
Consolidated Statements of Operations for the
Three months ended June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the
Three months ended June 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 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
Part I Financial Information
Item 1. Financial Statements MRS Technology, Inc.
Consolidated Balance Sheets
Assets June 30, 1997
Current assets (Unaudited) March 31, 1997
<S> <C> <C>
Cash and cash equivalents $ 3,170,770 $ 3,290,982
Accounts receivable 651,795 1,978,994
Inventories 7,681,582 7,313,982
Deposits 420,989 169,730
Other current assets 169,483 102,605
- ----------------------------------------------------------------------
Total current assets 12,094,619 12,856,293
Property and equipment, net 424,091 533,244
Other assets, net 36,160 37,979
- ----------------------------------------------------------------------
Total assets $12,554,870 $13,427,516
======================================================================
<CAPTION>
Current liabilities
<S> <C> <C>
Accounts payable $ 276,814 $ 370,644
Accrued expenses 890,494 813,224
Current portion of obligations
under capital leases 10,416 11,096
Customer deposits 1,334,889 1,312,389
Other liabilities 301,493 49,746
- ----------------------------------------------------------------------
Total current liabilities 2,814,106 2,557,099
Long-term debt 1,000,000 1,000,000
- ----------------------------------------------------------------------
Total liabilities 3,814,106 3,557,099
Stockholders' equity
Common stock, $.01 par value; authorized,
20,000,000 shares; issued and outstanding
6,795,567 and 6,776,355 shares
respectively 67,955 67,763
Additional paid-in capital 36,383,966 36,383,258
Accumulated deficit (27,711,157) (26,580,604)
- ----------------------------------------------------------------------
Total stockholders' equity 8,740,764 9,870,417
- ----------------------------------------------------------------------
Total liabilities and
stockholders' equity $12,554,870 $13,427,516
=====================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended June 30,
1997 1996
<S> <C> <C>
Revenues $ 417,556 $1,710,603
Cost of revenues 544,701 1,494,234
Gross margin (127,145) 216,369
Operating expenses:
Research and development (Note 1) 518,024 774,312
Selling, general and administrative 506,202 767,295
----------- -----------
Loss from operations (1,151,371) (1,325,238)
Interest income, net 40,851 45,978
Interest expense 23,154 204
Other income (expense), net 3,121 (816)
---------- ----------
Loss before provision for
income taxes (1,130,553) (1,280,280)
- -----------------------------------------------------------------------
Net Loss ($1,130,553) ($1,280,280)
=======================================================================
Net loss per share ($0.17) ($0.19)
Weighted average number of common
shares outstanding (000's) 6,787 6,687
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three month period ended June 30,
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net income (loss) ($1,130,553) ($1,280,280)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation 110,727 208,634
Changes in assets and liabilities
Accounts receivable 1,327,199 (12,902)
Inventories (367,600) (256,647)
Deposits and other assets (316,318) (58,243)
Accounts payable (93,830) (570,069)
Accrued expenses 77,270 (29,338)
Customer deposits 22,500 995,015
Other current liabilities 251,747 6,126
- ------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (118,858) (997,704)
Cash flows from investing activities
Capital expenditures (1,574) (8,783)
- ------------------------------------------------------------------------
Net cash (used in) investing activities (1,574) (8,783)
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 0 32,556
Proceeds from employee stock option
exercise 900 8,098
Principal payments under capital
lease obligations (680) (919)
- ------------------------------------------------------------------------
Net cash provided by financing activities 220 39,735
Net decrease in cash & equivalents (120,212) (966,752)
Cash and cash equivalents at beginning
of period 3,290,982 4,217,880
Cash and cash equivalents at end
of period $3,170,770 $3,251,128
=======================================================================
Supplemental cash flow information
Interest paid $23,154 $204
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
MRS Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The financial statements for the three month periods ended June 30, 1997
and 1996 are unaudited and include all adjustments which, in the opinion
of management, are necessary to present fairly the financial position at
June 30, 1997 and the results of operations and cash flows for the periods
then ended. All such adjustments are of a normal recurring nature. 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.
Certain information and footnote disclosures normally included in the
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, although the Company believes the
disclosures in these financial statements are adequate to make the
information presented not misleading.
The Company's financial position, results of operations and cash flows for
any interim period are not necessarily indicative of the results for any
other interim period or for a full fiscal year.
1. Research and Development
Research and product development costs are expensed as incurred. For the
three month periods ended June 30, 1997 and 1996, aggregate research and
product development costs were $518,024 and $1,196,093, respectively
including $0 and $421,781 of costs recovered under research and
development contracts.
2. Inventories
Inventories consist of the following as of June 30, 1997 and March 31,
1997:
<TABLE>
<CAPTION>
(In Thousands) June 30, 1997 March 31, 1997
<S> <C> <C>
Finished goods $ 750 $ 726
Work in process 6,352 5,647
Purchased parts 580 941
------- -------
$7,682 $7,314
</TABLE>
3. Net Loss Per Common Share
Net loss per common share for the three month periods ended June 30, 1997
and 1996 are computed based upon the weighted average number of common
shares outstanding. Common equivalent shares are not included in the loss
period as their effect would be anti-dilutive.
<PAGE>
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 first quarter there
would have been no significant impact.
4. 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 in
Idaho alleging defects in the PanelPrinter and seeking damages. On
January 30, 1997, the Company commenced proceedings against MDT in
Massachusetts seeking damages for breach of contract as well as incidental
damages, and multiple damages and attorneys' fees under Massachusetts
General Laws chapter 93A. The legal proceedings were consolidated in
Idaho, answers to the complaints were filed and discovery was begun.
In June 1997, the matter was referred to mediation under the auspices of
the United States District Court for the District of Idaho. As a result
of the mediation, 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 will 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.
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 for the development of an advanced large
area high-throughput step and repeat imaging tool is budgeted at $9.5
million with the USDC funding $4.5 million and MRS funding the remaining
$5.0 million.
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.
RESULTS OF OPERATIONS
TOTAL REVENUES
Consolidated revenues for the three month periods ended June 30, 1997 and
1996 were approximately $0.4 million and $1.7 million, respectively, a
decrease of $1.3 million. Product revenue decreased $1.2 million from
$1.2 million for the quarter ended June 30, 1996 to $0 for the quarter
ended June 30, 1997. The decrease in product revenue was due to no
systems sales or product related revenue in the quarter ended June 30,
1997. Service revenues increased $0.4 million from $0 to $0.4 million due
to the number of machines in the field now off warranty increasing the
need for both service contracts and sales of replacement, spare and
consumable parts, making this business a growing part of the Company's
total revenues.
Contract research revenue decreased approximately $0.5 million, from $0.5
million in the first fiscal quarter of 1996 to $0 for the same quarter in
the current fiscal year. The decrease in contract revenue quarter to
quarter was due to the Defense Advanced Research Projects Agency (DARPA)
project ending in fiscal year 1997.
GROSS MARGIN
Gross margin as a percentage of total revenues was 13% for the quarter
ended June 30, 1996 and was (30%) for the quarter ended June 30, 1997 due
mainly to the underabsorption of manufacturing costs due to reduced
production activity. Service gross margin for the quarter ended June 30,
1997 was 25% and is made up of the service revenue less the service
departments expenses, material costs and expenses both locally and in
Japan.
OPERATING EXPENSES
Research and development includes expenses incurred in support of internal
development programs and not allocable to customer funded contract
research.
Research and development expenses for the three month periods ended June
30, 1997 and 1996 were $0.5 million and $0.8 million, respectively.
Aggregate research and development spending before allocation to cost of
contract research revenue was $0.5 million and $1.2 million for the same
quarterly periods. The $0.3 million decrease was primarily a result of
headcount reductions taken in January 1997 and associated expenses.
Selling, general and administrative expenses were $0.5 million for the
three months ended June 30, 1997 and $0.8 million for the three months
ended June 30, 1996. This decrease of $0.3 million was primarily
attributable to headcount reductions taken in January 1997 and associated
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at June 30, 1997 of $3.2
million, unchanged from the March 31, 1997 balance.
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
June 30, 1997 the Company had an outstanding balance of $1.0 million.
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 $729,167. 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.
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 July 25, 1997, approximately $1.0 was
available under the line of credit. Subsequent to March 31, 1997, the
Company obtained approval for funding under a research and development
contract. The Company also has a letter of intent from a customer which
the Company expects will become a firm order as a result of the successful
funding of this project. 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 maximize 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 cancellation
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 Company's revenue was derived
from research and development contracts. The most significant funding
source has been DARPA. Additionally, a 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 first quarter there
would have been no significant impact.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 in
Idaho alleging defects in the PanelPrinter and seeking damages. On
January 30, 1997, the Company commenced proceedings against MDT in
Massachusetts seeking damages for breach of contract as well as incidental
damages, and multiple damages and attorneys' fees under Massachusetts
General Laws chapter 93A. The legal proceedings were consolidated in
Idaho, answers to the complaints were filed and discovery was begun.
In June 1997, the matter was referred to mediation under the auspices of
the United States District Court for the District of Idaho. As a result
of the mediation, the litigation was settled in July of 1997 pursuant to a
confidential settlement agreement between the parties and the legal
proceedings were terminated.
Item 4. Submission of Matters to a Vote of Security Holders.
Vote of shareholders at MRS Annual meeting held on July 31, 1996.
1. To elect one person to the Board of Directors to serve as a Class I
Director for three year term (Carl P. Herrmann).
For Nominee: 5,709,512
Withheld from Nominee: 443,620
Directors whose terms continue:
Robert Schechter
Griffith L. Resor, III
Ronald K. Haigh
2. To ratify the appointment of Coopers & Lybrand L.L.P. as auditors for
the fiscal year ending March 31, 1998.
For: 6,009,852
Against: 7,550
Abstain: 135,730
No Vote: 0
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: August 12, 1997 /s/Griffith L. Resor, III
Griffith L. Resor, III
President, CEO and Director
(Principal Executive Officer)
Date: August 12, 1997 /s/ Patricia F. DiIanni
Patricia F. DiIanni
Vice President, Treasurer,
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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,170,770
<SECURITIES> 0
<RECEIVABLES> 672,840
<ALLOWANCES> 21,045
<INVENTORY> 7,681,582
<CURRENT-ASSETS> 12,094,619
<PP&E> 3,909,056
<DEPRECIATION> 3,484,965
<TOTAL-ASSETS> 12,554,870
<CURRENT-LIABILITIES> 2,814,106
<BONDS> 0
0
0
<COMMON> 67,955
<OTHER-SE> 8,672,809
<TOTAL-LIABILITY-AND-EQUITY> 12,554,870
<SALES> 0
<TOTAL-REVENUES> 417,556
<CGS> 232,378
<TOTAL-COSTS> 544,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,154
<INCOME-PRETAX> (1,130,553)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,130,553)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
