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 nine month period ended: December 31, 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: January 29, 1997:
- ---------------------------- -----------------
Common Stock, par value $.01 6,836,552
<PAGE>
MRS Technology, Inc.
FORM 10-Q
For the nine month period ended December 31, 1997
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
December 31, 1997 (Unaudited) and March 31, 1997
Consolidated Statements of Operations for the
Three months ended December 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Operations for the
Nine months ended December 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the
Nine months ended December, 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
<PAGE>
<TABLE>
<CAPTION>
Part I Financial Information
Item 1. Financial Statements MRS Technology, Inc.
Consolidated Balance Sheets
Assets Dec 31, 1997
Current assets (Unaudited) March 31, 1997
<S> <C> <C>
Cash and cash equivalents $ 1,533,451 $ 3,290,982
Accounts receivable, net 1,292,640 1,978,994
Inventories 6,880,177 7,313,982
Deposits 274,989 169,730
Other current assets 86,338 102,605
- --------------------------------------------------------------------
Total current assets 10,067,595 12,856,293
Property and equipment, net 298,935 533,244
Other assets, net 31,135 37,979
- --------------------------------------------------------------------
Total assets $10,397,665 $13,427,516
====================================================================
<CAPTION>
Current liabilities
<S> <C> <C>
Accounts payable $ 201,420 $ 370,644
Accrued expenses 1,076,364 813,224
Current portion of obligations
under capital leases 0 11,096
Customer deposits 0 1,312,389
Other liabilities 49,308 49,746
- --------------------------------------------------------------------
Total current liabilities 1,327,092 2,557,099
Long-Term Debt 1,000,000 1,000,000
- --------------------------------------------------------------------
Total liabilities 2,327,092 3,557,099
Stockholders' equity
Common stock, $.01 par value; authorized, 68,366 67,763
20,000,000 shares; issued and outstanding
6,836,552 and 6,776,355 shares respectively
Additional paid-in capital 36,436,167 36,383,258
Accumulated deficit (28,433,960) (26,580,604)
- --------------------------------------------------------------------
Total stockholders' equity 8,070,573 9,870,417
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $10,397,665 $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 Dec 31,
Revenues 1997 1996
<S> <C> <C>
Product $1,776,595 $ 1,000,000
Service and other 551,835 587,595
--------- ---------
Total revenues 2,328,430 1,587,595
Cost of revenues
Product 1,432,189 1,438,013
Service and other 276,089 0
--------- ---------
Total cost of revenues 1,708,278 1,438,013
Gross margin 620,152 149,582
Operating expenses:
Research and development 378,123 832,191
Selling, general and administrative 565,782 715,528
--------- ---------
Loss from operations (323,753) (1,398,137)
Interest income, net 24,650 24,252
Interest expense 27,875 150
Other (expense), net (12,101) 0
--------- ---------
Loss before provision for
income taxes (339,079) (1,374,035)
Tax Provision 0 0
- ---------------------------------------------------------------------
Net loss ($339,079) ($1,374,035)
=====================================================================
Net loss per share ($0.05) ($0.20)
Weighted average number of common
shares outstanding (000's) 6,827 6,675
<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)
Nine months ended Dec. 31,
Revenues 1997 1996
<S> <C> <C>
Product $ 4,370,211 $ 4,427,082
Service 1,590,802 1,780,000
Contract research 0 578,483
--------- ---------
Total revenues 5,961,013 6,785,565
Cost of revenues
Product 3,899,066 5,054,907
Service 762,636 0
Contract research 0 578,493
--------- ---------
Total cost of revenues 4,661,702 5,633,400
Gross margin 1,299,311 1,152,165
Operating expenses:
Research and development 1,474,427 2,328,006
Selling, general and administrative 1,676,864 2,170,373
--------- ---------
Loss from operations (1,851,980) (3,346,214)
Interest income, net 99,407 98,511
Interest expense 78,601 539
Other (expense), net (22,535) (816)
---------- ---------
Loss before provision for
income taxes (1,853,709) (3,249,058)
Tax Provision 0 0
- ---------------------------------------------------------------------
Net loss ($1,853,709) ($3,249,058)
=====================================================================
Net loss per share ($0.27) ($0.48)
Weighted average number of common
shares outstanding (000's) 6,806 6,705
<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)
Nine month periods ended Dec. 31,
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net loss ($1,853,709) ($3,249,058)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 277,505 517,645
Amortization 1,674
Changes in assets and liabilities
Accounts receivable 686,354 (1,511,371)
Inventories 433,805 926,341
Deposits and other assets (82,148) 608,617
Accounts payable (169,224) (1,303,314)
Accrued expenses 263,140 351,326
Customer deposits from other (1,312,389) 1,032,515
Other current liabilities (438) 43,633
- -------------------------------------------------------------------------
Net cash used in operating activities (1,757,104) (2,581,992)
Cash flows from investing activities
Capital expenditures (17,139) (130,481)
-------------------------------------------------------------------------
Net cash used in investing activities (17,139) (130,481)
Cash flows from financing activities
Proceeds from stock purchases under 0 65,332
employee stock purchase plan
Proceeds from employee stock option
exercise 27,808 65,222
Principal payments under capital
lease obligations (11,096) (2,829)
-----------------------------------------------------------------------
Net cash provided by financing activities 16,712 127,725
Net decrease in cash & equivalents (1,757,531) (2,584,748)
Cash and cash equivalents at beginning
of period 3,290,982 4,217,880
Cash and cash equivalents at end
of period $ 1,533,451 $ 1,633,132
=========================================================================
Supplemental cash flow information
Interest paid $ 78,601 $ 540
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
MRS Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In managements opinion all adjustments necessary for a fair presentation
are reflected in the interim periods presented.
1. Inventories
Inventories consist of the following as of December 31, 1997 and March 31,
1997:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1997 March 31, 1997
<S> <C> <C>
Purchased parts $ 802 $ 941
Work in process 6,078 5,647
Finished Goods 0 726
------ ------
$6,880 $7,314
</TABLE>
2. Net Loss Per Common Share
Net loss per common share for the three and nine months ended December 31,
1997 and 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 third quarter there
would have been no significant impact on earnings per share for the three
and nine month periods ended December 31, 1997.
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 1998, demand for the Company's flat panel display (FPD)
equipment products remained low, as previously strong interest in such
equipment, particularly in Korea, diminished as a result of the financial
crisis in Asia in November and December, 1997. While such interest in
Taiwan has remained strong, the delay in implementing the Korean portion
of the joint US/Korean FPD initiative has created uncertainty about the
eventual outcome of that initiative. Existing orders were shipped as
planned, but the uncertainties relating to the entire FPD market has made
booking orders for new machines difficult. The Company is continuing to
pursue Asian FPD customers and strategic relationships.
At the same time, the Company has seen significant new interest in
advanced electronics packaging applications for its PanelPrinter product.
The source of this interest is currently mostly in the United States,
instead of mostly in Asia, as is the case for interest in FPD
manufacturing. As a result of its success in the R&D market for large-
area, step-and-repeat photolithography equipment, the Company has
extensive experience in working with many different types of substrates,
materials and photoresists, not just those used in AMLCD fabrication.
This experience relates directly to the issues being encountered in these
advanced packaging applications. The Company is currently quantifying
this new opportunity and developing a plan for a fast, focused response to
this new opportunity.
The Company's common stock is listed on the NASDAQ National Market.
Currently, the Company does not meet one or more of the new cirteria
required for continued listing on that market. If the Company is unable
to meet such criteria, it could be delisted from trading on the NASDAQ
National Market. However, the Company expects it would have a period of
several months after February 23, 1998, the effective date of the new
criteria, within which to meet such criteria, if the Company had a plan
for doing so. The Company is developing such a plan. If the Company is
unable to meet the requirements for continued listing on the NASDAQ
National Market, the Company could apply for listing on a national stock
exchange or other established automated over-the-counter trading market,
although there can be no assurance that the Company would meet the listing
criteria for such exchange or market.
The Company is currently working on several initiatives. The most
significant of these is the contract awarded to the Company 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. This
contract is $9.5 million and is about a 50% cost share between MRS and
USDC. The contract period is about 30 months.
RESULTS OF OPERATIONS
TOTAL REVENUES
Total revenue for the three month periods ended December 31, 1997 and 1996
was approximately $2.3 million and $1.6 million, respectively, an increase
of $0.7 million. For the nine month period ended December 31, 1997 and
1996 total revenue was $6.0 and $6.8 million, respectively. Total revenue
for the first nine months decreased $0.8 million from total revenues for
the comparable period in the preceding fiscal year.
Product revenue for the three month periods ended December 31, 1997 and
1996 was $1.8 million and $1.0 million, respectively and increase of $0.8
million quarter to quarter. This increase was due to the USDC contract
being reported under product revenue in the three month period ended
December 31, 1997. Product revenue for the first three quarters of fiscal
1998 and 1997 were flat at $4.4 million.
Service revenue for the three month periods ended December 31, 1997 and
1996 was flat at $0.6 million. The revenue for the first nine month
periods ended December 31, 1997 and 1996 was $1.6 million and $1.8
million, respectively. This $0.2 million decrease for the nine month
period was due to a one time large single customer order for spares in the
nine month period ended December 31, 1996.
Contract research revenue for fiscal 1997 reflects the winding down of the
DARPA Contract on which we reported no revenue in fiscal 1998.
GROSS MARGIN
Gross margin as a percentage of total revenue was 27% and 9%, respectively
for the three month periods ended December 31, 1997 and 1996 and was 22%
and 17% for the nine month periods ended December 31, 1997 and 1996.
Product related gross margin was 19% and(44%), respectively for the three
month periods ended December 31, 1997 and 1996 and was 11% and (14%) for
the nine month periods ended December 31, 1997 and 1996. The product
gross margins in fiscal 1997 were negative due to the sale of a
reconfigured PanelPrinter and underabsorption of overheads while fiscal
1998 brought better gross margins due to the sale of a retrofitted demo
machine previously written off.
Service gross margins remained relatively flat for all periods.
OPERATING EXPENSES
Research and development expenses for the three month periods ended
December 31, 1997 and 1996 were $0.4 million and $0.8 million,
respectively. Aggregate research and development spending before
allocation to product revenue was $0.7 million and $0.8 million for the
same quarterly periods. This $0.1 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 nine month periods ended December 31, 1997 and 1996 research and
development expenses were $1.5 and $2.3 million, respectively. Aggregate
research and development spending before allocation to cost of product
revenue was $2.1 million and $2.8 million, respectively. The $0.7 million
decrease for the nine month period was also attributable to the headcount
reductions taken in January 1997.
Selling, general and administrative expenses for the three month periods
ended December 31, 1997 and 1996 were $0.6 million and $0.7 million,
respectively. For the nine month periods ended December 31, 1997 and 1996
expenses were $1.7 million and $2.2 million, respectively. The decrease
in both the three and nine 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 December 31, 1997 of $1.5
million, a decrease of $1.8 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 nine months 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 $437,500 at December 31,
1997. The amount of liability 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
December 31, 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 January 28, 1998, 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 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 technologies. 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 Company's 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 Company'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 third quarter there
would have been no significant impact on earnings per share for the three
and nine month periods ended December 31, 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: February 10, 1998 /Signed/
Griffith L. Resor, III
President, CEO and Director
(Principal Executive Officer)
Date: February 10, 1998 /Signed/
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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,533,451
<SECURITIES> 0
<RECEIVABLES> 1,313,685
<ALLOWANCES> 21,045
<INVENTORY> 6,880,177
<CURRENT-ASSETS> 10,067,595
<PP&E> 3,950,678
<DEPRECIATION> 3,674,211
<TOTAL-ASSETS> 10,397,665
<CURRENT-LIABILITIES> 1,327,092
<BONDS> 0
0
0
<COMMON> 68,366
<OTHER-SE> 8,002,207
<TOTAL-LIABILITY-AND-EQUITY> 10,397,665
<SALES> 4,370,211
<TOTAL-REVENUES> 5,961,013
<CGS> 3,899,066
<TOTAL-COSTS> 4,661,702
<OTHER-EXPENSES> 22,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,601
<INCOME-PRETAX> (1,853,709)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,853,709)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
