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, 1998
Commission File Number: 0-21908
MRS Technology, Inc.
(Exact name of registrant as specified in its charter.)
Massachusetts 04-2904966
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 (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 11, 1998
- ---------------------------- ----------------
Common Stock, par value $.01 6,858,763
<PAGE>
MRS Technology, Inc.
FORM 10-Q
For the three-month period ended June 30, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 1998 (Unaudited) and March 31, 1998
Consolidated Statements of Operations for the
Three months ended June 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the
Three months ended June 30, 1998 and 1997 (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 3. Defaults upon Senior Securities
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, 1998
Current assets (Unaudited) March 31, 1998
<S> <C> <C>
Cash and cash equivalents $ 129,041 $1,094,636
Accounts receivable 316,228 862,155
Inventories 5,575,890 5,643,432
Deposits 20,989 20,989
Other current assets 111,895 56,076
- ----------------------------------------------------------------------
Total current assets $ 6,154,043 $7,677,288
Property and equipment, net 130,672 176,969
Other assets, net 29,339 29,965
- ----------------------------------------------------------------------
Total assets $ 6,314,054 $7,884,222
======================================================================
<CAPTION>
Current liabilities
<S> <C> <C>
Accounts payable $ 689,325 $ 723,516
Accrued expenses 925,103 1,187,700
Long-term debt 1,025,000 1,000,000
Customer deposits 506,250 -
Other liabilities 111,880 140,714
- ----------------------------------------------------------------------
Total current liabilities 3,257,558 3,051,930
- ----------------------------------------------------------------------
Total liabilities $ 3,257,558 $ 3,051,930
Stockholders' equity
Common stock, $.01 par value; authorized,
20,000,000 shares; issued and outstanding
6,858,763 and 6,838,165 shares
respectively 68,588 68,381
Additional paid-in capital 36,511,203 36,487,455
Accumulated deficit (33,523,295) (31,723,544)
- ----------------------------------------------------------------------
Total stockholders' equity 3,056,496 4,832,292
- ----------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 6,314,054 $ 7,884,222
=====================================================================
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,
1998 1997
<S> <C> <C>
Revenues $ 389,525 $ 417,556
Cost of revenues 797,467 544,701
Gross margin (407,942) (127,145)
Operating expenses:
Research and development (Note 1) 680,335 518,024
Selling, general and administrative 681,119 506,202
----------- -----------
Loss from operations (1,769,396) (1,151,371)
Interest income, net 6,782 40,851
Interest expense 32,085 23,154
Other income (expense), net (5,050) 3,121
---------- ----------
Loss before provision for
income taxes (1,799,749) (1,130,553)
- -----------------------------------------------------------------------
Net Loss ($1,799,749) ($1,130,553)
=======================================================================
Net loss per share ($0.26) ($0.17)
Weighted average number of common
shares outstanding (000's) 6,851 6,787
<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,
1998 1997
Cash flows from operating activities
<S> <C> <C>
Net income (loss) ($1,799,749) ($1,130,553)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation 58,656 110,727
Changes in assets and liabilities
Accounts receivable 545,927 1,327,199
Inventories 67,542 (367,600)
Deposits and other assets (55,819) (316,318)
Accounts payable (34,191) (93,830)
Accrued expenses (262,597) 77,270
Customer deposits 506,250 22,500
Other current liabilities (28,834) 251,747
- ------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (1,002,815) (118,858)
Cash flows from investing activities
Capital expenditures (11,735) (1,574)
- ------------------------------------------------------------------------
Net cash (used in) investing activities (11,735) (1,574)
Net borrowings under line of credit 25,000 0
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 18,996 0
Proceeds from employee stock option
exercise 4,959 900
Principal payments under capital
lease obligations 0 (680)
- ------------------------------------------------------------------------
Net cash provided by financing activities 48,955 220
Net decrease in cash & equivalents (965,595) (120,212)
Cash and cash equivalents at beginning
of period 1,094,636 3,290,982
Cash and cash equivalents at end
of period 129,041 3,170,770
=======================================================================
Supplemental cash flow information
Interest paid $ 32,085 $ 23,154
<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, 1998
and 1997 are unaudited and include all adjustments which, in the opinion
of management, are necessary to present fairly the financial position at
June 30, 1998 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, 1998.
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. There
were no costs recovered under research and development contracts during
either of the quarterly periods ending June 30, 1998 or 1997.
2. Inventories
Inventories consist of the following as of June 30, 1998 and March 31,
1998:
<TABLE>
<CAPTION>
(In Thousands) June 30, 1998 March 31, 1998
<S> <C> <C>
Work in process $4,036 $4,585
Purchased parts 1,540 1,058
------- -------
$5,576 $5,643
</TABLE>
3. Net Loss Per Common Share
<TABLE>
<CAPTION>
Net loss per share is calculated as follows:
Quarter Ended June 30,
(In Thousands, except per share amounts) 1998 1997
<S> <C> <C>
Net loss ($1,800) ($1,131)
Basic and diluted
Weighted-average common shares outstanding 6,851 6,787
Net loss per common share ($0.26) (0.17)
</TABLE>
4. Litigation
On January 24, 1997, Micron Display Technology ("Micron Display") brought
suit in Idaho against the Company alleging in five counts breach of
contract, breach of implied warranties, and breach of express warranties,
in connection with a Model 5200 PanelPrinter (the "PanelPrinter") which
the Company alleged Micron Display purchased from the Company in 1996. On
January 30, 1997, the Company filed an action in Massachusetts against
Micron Display alleging in two counts breach of contract and violation of
M.G.L.c.93A, in connection with Micron Display's nonpayment for the
PanelPrinter.
The parties disputed which documents constituted the contract between
them. Further, Micron Display alleged, among other things, that the
PanelPrinter failed to meet certain performance specifications contained
in what it contended constituted the contract, and that, as a consequence,
it was entitled to the return of its $1.0 million deposit and the
conversion of the parties' relationship to a lease of the PanelPrinter, or
a PanelPrinter of like quality. The Company maintained that other
documents constituted the contract, pursuant to which there was no right
to convert the relationship to a lease, and further denied that the
PanelPrinter failed to meet specifications set forth in the document cited
by Micron Display. The Company sought approximately $1.4 million as the
balance of the unpaid contract price, and additional remedies under the
Massachusetts Unfair Business Practices Act.
On July 23, 1997, the parties executed a Settlement Agreement resolving
their disputes and releasing all claims against each other. Both lawsuits
have now been dismissed. While the specific terms of the Settlement
Agreement are confidential, the settlement generally provided for a lump
sum payment to be made by Micron Display to the Company at the time the
Settlement Agreement was executed, and further monthly installment
payments to be made thereafter. These payments, together with Micron
Display's initial deposit, constitute payment in full for the
PanelPrinter. The Company in turn has agreed to provide Micron Display
with an extended warranty with respect to the PanelPrinter, as well as
technical assistance and certain modifications to the PanelPrinter. No
significant amounts due to or from Micron remain outstanding at June 30,
1998.
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA. The case has been assigned to Bankruptcy Judge James F.
Queenan, Jr.
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 the first quarter of fiscal 1999 the Company, under the direction
of its new chief executive officer, refocused its marketing efforts
towards the High Density Interconnect (HDI) business, specifically, for
the high density single chip and multi-chip packaging. The Company sought
strategic relationships with customers in the new market in order to gain
new orders for its products, in the short-term and market acceptance of
its technology in the long term. The Company also attempted to obtain
funding for its operations and research and development efforts and to
renegotiate the terms of its line of credit.
The Company was unable to get funding or to negotiate successfully with
regard to its line of credit, although it did receive a waiver on
complying with certain covenants in the line of credit agreement valid
through June 30, 1998. That waiver was not extended and the Company is
now in default under its line of credit.
On June 30, 1998 the Company laid off approximately 80% of its work force.
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA. The case has been assigned to Bankruptcy Judge James F.
Queenan, Jr.
The Company retained substantially all of its service organization and is
continuing to support the installed base. The Company expects that this
will be an important source of revenue in the near term. The Company's
plan is to conserve cash while attempting to close transactions for the
sale of four machines in inventory and develop new products to market to
the HDI segment of the Printed Circuit Board (PCB) manufacturing industry.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
TOTAL REVENUES
Revenues (In Thousands)
Quarter Ended June 30,
1998 1997
<S> <C> <C>
Service & other $390 $418
</TABLE>
Revenue for the quarters ending June 30, 1998 and 1997 were approximately
the same. There were no system sales in either quarter.
<TABLE>
<CAPTION>
GROSS MARGIN
Quarter Ended June 30,
Gross Margin (In Thousands) 1998 1997
<S> <C> <C>
Product ($429) ($239)
As % of revenue - -
Service & other 21 112
As % of revenue .5% 26%
Total ($408) ($127)
</TABLE>
Product gross margin represents the underabsorption of both the materials
and manufacturing departments for both quarters end June 30, 1998 and
1997. The materials department underabsorption was significantly higher
for the quarter ending June 30, 1998 due to lower purchases. This
underabsorption should no longer be an issue due to lay-off of
manufacturing and materials personnel.
Service Gross margin dropped in the first quarter of June 1998 compared to
June 1997 due to the higher travel, salary and fringe and lower gross
margin on parts sales due to mix of parts sold.
<TABLE>
<CAPTION>
Research & Development
Quarter Ended June 30,
(In Thousands) 1998 % Change 1997
<S> <C> <C> <C>
Research and development $680 31% $518
As a % of revenue 174% 124%
</TABLE>
Research and development expense increased in the quarter ending June 30,
1998 over the same quarter in 1997 due mainly to higher expenses related
to consulting and materials for the development of a new product to sell
into the HDI market.
<TABLE>
<CAPTION>
Selling, General and Administrative
Quarter Ended June 30,
(In Thousands) 1998 % Change 1997
<S> <C> <C> <C>
Selling, general & administrative $681 35% $506
As a % of revenue 175% 121%
</TABLE>
Selling, general and administrative expense increased in the quarter ended
June 30, 1998 over the same quarter in 1997 due mainly to the committment
fee for the Coast Business Credit credit line, consulting, bankruptcy
legal costs, travel, insurance and higher benefit expense related to
lay-off of employees. One time charges are approximately $125,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at June 30, 1998 of $129
thousand, a decrease of $1.0 million from March 31, 1998. This decrease
was mainly the result of negative cash flows from operations in fiscal
1999 which have resulted from declining sales and, therefore, significant
losses from operations.
Historically, the Company has required significant working capital to
support its research and development efforts and to meet its ongoing
production, selling and general and administrative costs. The Company's
transition to a new market will require investments to adapt the Company's
FPD technology for this new market as well as substantial funding for its
ongoing operations until such time as orders from this new market are
sufficient to meet its working capital needs. In addition, historically,
the Company has funded a substantial portion of its aggregate research and
developments costs through contracts with an agency of the U.S. government
and other contracts. However, the Company does not expect to continue to
funds its research and development efforts through similar contracts in
the future. The Company's ability to develop new technologies is
dependent upon its ability to fund research and development through
working capital and/or other financing alternatives.
In the past, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available
under its line of credit. However, as a result of its significant net
loss in fiscal 1998, the Company was not in compliance with a financially
restrictive debt covenant, minimum tangible net worth, as of March 31,
1998.
The Company was unable to get funding or to negotiate successfully with
regard to its line of credit, although it did receive a waiver on
complying with certain covenants in the line of credit agreement valid
through June 30, 1998. That waiver was not extended and the Company is
now in default under its line of credit.
During the first quarter of fiscal 1999 the Company, under the direction
of its new chief executive officer, refocused its marketing efforts
towards the High Density Interconnect (HDI) business, specifically, for
the high density single chip and multi-chip packaging. The Company sought
strategic relationships with customers in the new market in order to gain
new orders for its products, in the short-term and market acceptance of
its technology in the long term. The Company also attempted to obtain
funding for its operations and research and development efforts and to
renegotiate the terms of its line of credit.
On June 30, 1998 the Company laid off approximately 80% of its work force.
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA. The case has been assigned to Bankruptcy Judge James F.
Queenan, Jr.
The Company retained substantially all of its service organization and is
continuing to support the installed base. The Company expects that this
will be an important source of revenue in the near term. The Company's
plan is to conserve cash while attempting to close transactions for the
sale of four machines in inventory and develop new products to market to
the HDI segment of the Printed Circuit Board (PCB) manufacturing industry.
Factors Affecting Future Results
In addition to the risks discussed in "Business Developments" and
"Liquidity and Capital Resources" above, 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, 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.
PanelPrinters and optional equipment generally have ranged in price from
$1.1 to $2.7 million. Any delay in revenue recognition or cancellation of
an order would adversely affect the Company's results of operations, cash
flows, or both. Fluctuations in product revenues, and consequently
quarterly and annual net income or loss, are largely related to revenue
recognition on sales of PanelPrinter units. In addition, the process for
turning prospects into firm purchase commitments and subsequently selling
the systems is often lengthy.
Year 2000 Computer Systems Compliance
Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond year 1999. These
concerns focus on the impact of the Year 2000 problem on business
operations and the potential costs associated with identifying and
addressing the problem. The Company is in the process of evaluating and
taking steps to deal with the potential impact of this problem in areas
under its control, in particular its products, its administrative and
business systems, and its sources of supply.
Based on its review to date, the Company believes that its own products
are "Year 2000 compliant". The Company is in the process of upgrading its
business systems. The upgrade will enable proper processing of
transactions relating to the Year 2000 and beyond. The Company has also
undertaken a program to survey suppliers to determine the status and
schedule for their Year 2000 compliance. Where it is believed that a
particular supplier's situation poses unacceptable risks, the Company
plans to identify an alternative source.
Costs incurred in the compliance effort will be expensed as incurred.
While the Company's Year 2000 compliance evaluation is not yet complete,
the Company does not foresee a material impact on its business, operating
results or financial position from the Year 2000 problem. The Company
cannot, of course, predict the nature or materiality of the impact on its
operations or operating results of noncompliance by parties outside its
control.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA. The case has been assigned to Bankruptcy Judge James F.
Queenan, Jr.
Item 3. Default Upon Senior Securities
The Company has a line of credit with Coast Business Credit in the amount
of $4 million. The Company is in default of its tangible net worth
covenent. The amount of principle and interest due as of July 31, 1998 is
$1,073,760.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
Form 8-K. July 1, 1998
<PAGE>
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, 1998 /s/Carl P. Herrmann
Carl P. Herrmann
President, CEO and Director
(Principal Executive Officer)
Date: August 12, 1998 /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, 1998.
</LEGEND>
<CIK> 0000906768
<NAME> MRS TECHNOLOGY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 129,041
<SECURITIES> 0
<RECEIVABLES> 337,273
<ALLOWANCES> 21,045
<INVENTORY> 5,575,890
<CURRENT-ASSETS> 6,154,043
<PP&E> 3,906,242
<DEPRECIATION> 3,775,570
<TOTAL-ASSETS> 6,314,054
<CURRENT-LIABILITIES> 3,257,558
<BONDS> 0
0
0
<COMMON> 68,586
<OTHER-SE> 2,987,910
<TOTAL-LIABILITY-AND-EQUITY> 6,314,054
<SALES> 0
<TOTAL-REVENUES> 389,525
<CGS> 0
<TOTAL-COSTS> 797,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,085
<INCOME-PRETAX> (1,799,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,799,749)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
