UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
| (Mark One) | ||
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarter ended July 3, 2004 | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . |
Commission File Number 0-23418
MTI TECHNOLOGY CORPORATION
| Delaware | 95-3601802 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
14661 Franklin Avenue
Tustin, California 92780
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code:
(714) 481-7800
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of Registrant’s Common Stock, $0.001 par value, was 34,581,655 on July 3, 2004.
| EXPLANATORY NOTE | ||||||||
| PART I | ||||||||
| ITEM 1 — FINANCIAL STATEMENTS | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| EXHIBIT 31.1 | ||||||||
| EXHIBIT 31.2 | ||||||||
| EXHIBIT 32.1 | ||||||||
| EXHIBIT 32.2 | ||||||||
EXPLANATORY NOTE
This quarterly report on Form 10-Q/A is being filed to amend the Quarterly Report on Form 10-Q of MTI Technology Corporation (the “Company”) for the quarter ended July 3, 2004, which was filed with the SEC on August 17, 2004, (the “Original Filing”). The Company is correcting the following information.
(1) PART I, ITEM 1 – FINANCIAL STATEMENTS: On the Company’s condensed consolidated balance sheet as of July 3, 2004, the Company has reclassified the values assigned to redeemable convertible preferred stock, additional paid-in capital and accumulated deficit. This revision was due to a change in the assumptions used in the Black-Scholes calculation in order to value the warrants issued in connection with the Series A Convertible Preferred Stock (the “Series A”) as well as a change in accounting for the beneficial conversion discount related to the Series A. In the Original Filing, the Company had computed the estimated fair value of the warrants using the expected exercise term of six years for valuing the warrants. Subsequent to the Original Filing, the Company determined that it was more appropriate to use the actual life of the warrant of 10 years in the Black-Scholes calculation. Also, in the Original Filing, the Company recorded the impact of the entire beneficial conversion feature in the quarter ended July 3, 2004. Subsequent to the Original Filing, the Company determined that it was more appropriate to amortize the beneficial conversion over the period of time from the Series A issuance date to the first available redemption date, or five years. This decision was made due to the fact that after five years from the Series A issuance date, the holders of the Series A have the option to cause the Company to redeem any portion of the remaining Series A. Although this redemption right is not mandatory, it is outside the control of the Company and in accordance with EITF 00-27, the beneficial conversion feature should be amortized over the five year period. The revised condensed consolidated balance sheets as of July 3, 2004 and April 3, 2004 are presented below. While the revised approach to accounting for the Series A does have the effect of decreasing the Company’s net loss available to common shareholders for the period, it has no effect on the Company’s total assets, total liabilities, revenues, margins or operating loss, as reported in the Original Filing.
(2) PART I, ITEM 1 – FINANCIAL STATEMENTS: On the Company’s condensed consolidated statement of operations for the three months ended July 3, 2004, the Company has revised the beneficial conversion feature related to preferred stock, net loss applicable to common shareholders and net loss per share applicable to common shareholders, basic and diluted. These changes were due to the reasons noted in (1) above. The revised condensed consolidated statements of operations for the three months ended July 3, 2004 and July 5, 2003 are presented below.
(3) PART I, ITEM 1 – FINANCIAL STATEMENTS: In Note 1 to the notes to condensed consolidated financial statements the Company has revised the table in the section “Accounting for stock-based compensation” to reflect the revised net loss applicable to common shareholders, as reported, due to the reasons noted in (1) above.
(4) PART I, ITEM 1 – FINANCIAL STATEMENTS: The Company has revised Note 7 to the notes to condensed consolidated financial statements to reflect the revised beneficial conversion feature related to preferred stock, the net loss applicable to common shareholders and the net loss per share applicable to common shareholders, basic and diluted, due to the reasons noted in (1) above.
(5) PART I, ITEM 1 – FINANCIAL STATEMENTS: In Note 12 to the notes to condensed consolidated financial statements, the Company has revised the discussion in the section “Series A Convertible Stock” to reflect the change in the accounting for the beneficial conversion feature due to the reasons noted in (1) above.
The Original Filing as amended hereby continues to speak as of the date of the Original Filing and the disclosures have not been updated to speak to any later date. Any items in the Original Filing that are not expressly changed hereby shall be as set forth in the Original Filing. All information contained in this Amendment No. 1 and the Original Filing is subject to updating and supplementing as provided in our subsequent periodic reports filed with the Securities and Exchange Commission.
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PART I, ITEM 1 – FINANCIAL STATEMENTS
MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| July 3, | April 3, | |||||||
| 2004 | 2004 | |||||||
ASSETS | (UNAUDITED) | |||||||
| (RESTATED) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 15,752 | $ | 3,017 | ||||
| Accounts receivable, less allowance for doubtful accounts and sales returns of $440 and $437 at July 3, 2004 and April 3, 2004, respectively | 19,998 | 22,352 | ||||||
| Inventories | 6,839 | 6,186 | ||||||
| Income tax refund and interest receivable | 55 | 2,464 | ||||||
| Prepaid expenses and other receivables | 6,346 | 5,792 | ||||||
| Total current assets | 48,990 | 39,811 | ||||||
| Property, plant and equipment, net | 1,223 | 1,401 | ||||||
| Goodwill, net | 5,184 | 5,184 | ||||||
| Other | 221 | 216 | ||||||
| $ | 55,618 | $ | 46,612 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Line of credit | $ | 3,933 | $ | 3,933 | ||||
| Current portion of capital lease obligations | 181 | 176 | ||||||
| Accounts payable | 11,686 | 13,650 | ||||||
| Accrued liabilities | 6,569 | 6,097 | ||||||
| Accrued restructuring charges | 1,649 | 1,830 | ||||||
| Deferred revenue | 10,119 | 11,382 | ||||||
| Total current liabilities | 34,137 | 37,068 | ||||||
| Capital lease obligations, less current portion | 44 | 95 | ||||||
| Deferred revenue | 2,685 | 2,308 | ||||||
| Total liabilities | 36,866 | 39,471 | ||||||
| Redeemable convertible preferred stock, 567 shares issued and outstanding at July 3, 2004 | 6,243 | — | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $.001 par value; authorized 5,000 shares; issued and outstanding 567 and 0 shares at July 3, 2004 and April 3, 2004, respectively, included in redeemable convertible preferred stock above | — | — | ||||||
| Common stock, $.001 par value; authorized 80,000 shares; issued (including treasury shares) and outstanding 34,582 and 34,473 shares at July 3, 2004 and April 3, 2004, respectively | 34 | 34 | ||||||
| Additional paid-in capital | 143,917 | 136,316 | ||||||
| Accumulated deficit | (128,067 | ) | (126,149 | ) | ||||
| Accumulated other comprehensive loss | (3,176 | ) | (3,060 | ) | ||||
| Deferred compensation | (199 | ) | — | |||||
| Total stockholders’ equity | 12,509 | 7,141 | ||||||
| $ | 55,618 | $ | 46,612 | |||||
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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| THREE MONTHS ENDED | ||||||||
| JULY 3, 2004 | JULY 5, 2003 | |||||||
| (RESTATED) | ||||||||
| Net product revenue | $ | 17,204 | $ | 8,328 | ||||
| Service revenue | 8,832 | 9,450 | ||||||
| Total revenue, including $0 and $58 from related parties in fiscal 2005 and 2004, respectively | 26,036 | 17,778 | ||||||
| Product cost of revenue | 13,096 | 5,982 | ||||||
| Service cost of revenue | 6,893 | 6,384 | ||||||
| Total cost of revenue | 19,989 | 12,366 | ||||||
| Gross profit | 6,047 | 5,412 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 7,744 | 7,144 | ||||||
| Research and development | — | 776 | ||||||
| Restructuring charges | — | 40 | ||||||
| Total operating expenses | 7,744 | 7,960 | ||||||
| Operating loss | (1,697 | ) | (2,548 | ) | ||||
| Interest and other expense, net | (147 | ) | (30 | ) | ||||
| Gain (loss) on foreign currency transactions | 53 | (273 | ) | |||||
| Loss before income taxes | (1,791 | ) | (2,851 | ) | ||||
| Income tax expense (benefit) | (2 | ) | 6 | |||||
| Net loss | (1,789 | ) | (2,857 | ) | ||||
| Accretion of beneficial conversion related to preferred stock | (77 | ) | — | |||||
| Dividend on preferred stock | (53 | ) | — | |||||
| Net loss applicable to common shareholders | $ | (1,919 | ) | $ | (2,857 | ) | ||
| Net loss per share applicable to common shareholders: | ||||||||
| Basic and diluted | $ | (0.06 | ) | $ | (0.09 | ) | ||
| Weighted-average shares used in per share computations: | ||||||||
| Basic and diluted | 34,555 | 32,974 | ||||||
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Note 1. Summary of Significant Accounting Policies
Accounting for stock-based compensation
The Company accounts for its stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations, rather than the alternative fair value accounting allowed by Statement of Financial Accounting Standards No. (Statement) 123, “Accounting for Stock Based Compensation.” APB 25 provides that compensation expense relative to the Company’s employee stock options is measured based on the intrinsic value of stock options granted and the Company recognizes compensation expense in its statement of operations using the straight-line method over the vesting period for fixed awards. Under Statement 123, the fair value of stock options at the date of grant is recognized in earnings over the vesting period of the options. In December 2002, the Financial Accounting Standards Board (FASB) issued Statement 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Statement 148 amends Statement 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results. The Company adopted the disclosure provisions of Statement 148 as of April 5, 2003, and continues to follow APB 25 for stock-based employee compensation.
The following table shows pro forma net loss as if the fair value method of Statement 123 had been used to account for stock-based compensation expense:
| THREE MONTHS ENDED | ||||||||
| JULY 3, 2004 | JULY 5, 2003 | |||||||
| Net loss applicable to common shareholders, as reported | $ | (1,919 | ) | $ | (2,857 | ) | ||
| Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects | — | — | ||||||
| Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects | (903 | ) | (1,623 | ) | ||||
| Pro forma net loss applicable to common shareholders | $ | (2,822 | ) | $ | (4,480 | ) | ||
| Net loss per share applicable to common shareholders: | ||||||||
| Basic and diluted, as reported | $ | (0.06 | ) | $ | (0.09 | ) | ||
| Basic and diluted, pro forma | $ | (0.08 | ) | $ | (0.14 | ) | ||
The fair value of the options granted has been estimated at the date of grant using the Black-Scholes option-pricing model. The following represents the weighted-average fair value of options granted and the assumptions used for the calculations:
| JULY 3, 2004 | JULY 5, 2003 | |||||||
| Weighted-average fair value of options granted | $ | 2.07 | $ | 0.69 | ||||
| Expected volatility | 0.7 | 0.9 | ||||||
| Risk-free interest rate | 3.62 | % | 2.63 | % | ||||
| Expected life (years) | 5.0 | 5.0 | ||||||
| Dividend yield | — | — | ||||||
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The Black-Scholes option valuation model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility.
Note 7. Net Loss per Share
The following table sets forth the computation of basic and diluted net loss per share:
| THREE MONTHS ENDED | ||||||||
| JULY 3, | JULY 5, | |||||||
| 2004 | 2003 | |||||||
| Numerator: | ||||||||
| Net loss | $ | (1,789 | ) | $ | (2,857 | ) | ||
| Accretion of beneficial conversion related to preferred stock | (77 | ) | — | |||||
| Dividend on preferred stock | (53 | ) | — | |||||
| Net loss applicable to common shareholders | $ | (1,919 | ) | $ | (2,857 | ) | ||
| Denominator: | ||||||||
| Denominator for net loss per share, basic and diluted weighted-average shares used in per share computations | 34,555 | 32,974 | ||||||
| Net loss per share applicable to common shareholders, basic and diluted | $ | (0.06 | ) | $ | (0.09 | ) | ||
Options and warrants to purchase 12,493 shares of common stock were outstanding at July 3, 2004, but were not included in the computation of diluted net loss per share for the three months ended July 3, 2004, because the effect would be antidilutive.
Options and warrants to purchase 10,286 shares of common stock were outstanding at July 5, 2003, but were not included in the computation of diluted net loss per share for the three months ended July 5, 2003, because the effect would be antidilutive.
Note 12. Stock Issuance
Series A Convertible Preferred Stock
On June 17, 2004, the Company sold 566,797 shares of Series A Convertible Preferred Stock (the “Series A”) in a private placement financing at $26.46 per share, which raised $14.6 million in net proceeds (exclusive of related investment banking fees discussed below). The sale included issuance of warrants to purchase 1,634,308 shares of the Company’s common stock at an exercise price of $3.10 per share. The warrants are exercisable on or after December 20, 2004, and expire on June 17, 2015. The shares of common stock into which the warrants are exercisable represent twenty-five percent (25%) of the aggregate number of shares of common stock into which the Series A are convertible plus an additional 207,315 shares of common stock. Each share of the Series A is convertible into common stock any time at the direction of the holders, at an initial conversion rate of ten shares of common stock for each share of Series A, subject to adjustments upon certain dilutive issuances of securities by the Company. The Series A is convertible into common stock at the initial stated Series A price per share. As part of the private placement, a representative of the investors has joined the Company’s Board of Directors. EMC was a participating investor in the private placement, contributing $4 million of the $15 million gross proceeds raised.
The Series A contains a beneficial conversion feature as the Series A was priced based on 90% of the average closing price of the Company’s common stock during the 20 trading days prior to
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the Series A issuance. The beneficial conversion feature is computed at $8.8 million including $3.0 million attributable to the warrants. The estimated fair value of the warrants was computed using the Black-Scholes model and the following assumptions: Risk free rate – 4.71%; Volatility – 87%; Expected life – 10 years. The beneficial conversion feature will be amortized as a non-cash charge to retained earnings over the five year period using the effective interest method from the Series A issuance date until the first available redemption date.
The Series A carries a cumulative dividend of 8% per year payable when and if declared by the Board of Directors. The Company recorded an accrued dividend payable of $53 in the first quarter of fiscal year 2005. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series A shall be senior in all respects to all other equity holders of the Company. The Company has the option to pay the dividends in cash or common stock, when approved by the Board of Directors.
After five years from the Series A issuance date, the holders of the Series A shall have the right to require the Company to redeem all or any portion of the Series A for an amount equal to 100% of the Series A at its stated value plus accrued but unpaid dividends. After five years from the Series A issuance date, the Company may redeem all or any portion of the Series A at the greater of (i) the fair market value of the Series A redeemed, or (ii) the stated value of the Series A redeemed, plus accrued and unpaid dividends. Given that the investor redemption right is outside the control of the Company, the Series A was recorded outside of permanent equity.
Each share of Series A is entitled to vote with holders of common stock on an as-converted basis. Pursuant to the terms of a related investors’ rights agreement, the Company has agreed to register the sale of shares of common stock issuable upon conversion of the Series A. The Company is in the process of registering these shares, however, the registration on Form S-3 is not yet effective. As part of the private placement financing, the Series A investors and Canopy entered into a proxy agreement whereby the Series A investors are able to vote Canopy’s shares as it relates to certain significant corporate transactions. Subsequent to the private placement, the Series A investors beneficially owned 17% of the Company’s outstanding common stock. Together, assuming conversion of the Series A into common stock, Canopy and the Series A investors beneficially own 52% of the Company’s outstanding common stock.
The Company is in negotiations with an investment bank regarding the amount of fees related to the Series A offering. The fee will not exceed 8% of the gross proceeds raised (excluding $2.0 million of proceeds contributed by EMC). As of July 3, 2004, the Company has accrued the full 8% fee as a reduction to the preferred stock and will adjust this amount when negotiations are finalized (note 4).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of August 2004.
| MTI TECHNOLOGY CORPORATION | ||||
| /s/ TODD SCHAEFFER | ||||
| By: Todd Schaeffer | ||||
| Chief Financial Officer and Secretary (Principal Financial Officer) | ||||
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EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
