UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the six month period ended: September 30, 1996
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 92) has been
subject to such filing requirements for the past 90 days.
YES (X) NO ( )
Applicable only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Outstanding as of
Class: November 6, 1996:
- ---------------------------- -----------------
Common Stock, par value $.01 6,771,374
MRS Technology, Inc.
FORM 10-Q
For the six month period ended September 30, 1996
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1996 (Unaudited) and March 31, 1996
Consolidated Statements of Operations for the
Three months ended September 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Operations for the
Six months ended September 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the
Six months ended September 30, 1996 and 1995 (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
Part I Financial Information
Item 1. Financial Statements MRS Technology, Inc.
Consolidated Balance Sheets
Assets Sept 30, 1996
Current assets (Unaudited) March 31, 1996
Cash and cash equivalents $ 2,105,602 $ 4,217,880
Accounts receivable, net 2,157,754 1,116,981
Inventories 6,940,842 8,093,014
Deposits 1,063,619 1,024,551
Other current assets 612,494 95,634
- --------------------------------------------------------------------
Total current assets 12,880,311 14,548,060
Property and equipment, net 756,649 1,017,266
Assets held for lease, net 616,740 696,808
Other assets, net 37,921 38,948
- --------------------------------------------------------------------
Total assets $14,291,621 $16,301,082
====================================================================
Current liabilities
Accounts payable $ 799,734 $ 1,867,756
Accrued expenses 1,277,939 1,456,975
Current portion of obligations
under capital leases 3,355 3,839
Customer deposits 1,032,515 0
Other liabilities 106,578 97,524
- --------------------------------------------------------------------
Total current liabilities 3,220,121 3,426,094
Long-term portion of obligations
under capital leases 9,792 11,165
- --------------------------------------------------------------------
Total liabilities 3,229,913 3,437,259
Stockholders' equity
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued and outstanding 6,739,035 and
6,674,320 shares respectively 67,390 66,743
Additional paid-in capital 36,322,723 36,246,889
Accumulated deficit (25,328,405) (23,449,809)
- --------------------------------------------------------------------
Total stockholders' equity 11,061,708 12,863,823
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $14,291,621 $16,301,082
====================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Sept. 30,
Revenues 1996 1995
Product $3,409,389 $1,123,333
Contract research 77,978 1,166,904
--------- ---------
Total revenues 3,487,367 2,290,237
Cost of revenues
Product 2,623,175 1,089,128
Contract research 77,978 1,166,904
--------- ---------
Total cost of revenues 2,701,153 2,256,032
Gross profit 786,214 34,205
Operating expenses:
Research and development (Note 1) 721,503 464,559
Selling, general and administrative 687,550 933,881
--------- ---------
Loss from operations (622,839) (1,364,235)
Interest income, net 28,281 97,187
Interest expense 185 0
Other income (expense), net 0 0
--------- ---------
Loss before provision for
income taxes (594,743) (1,267,048)
Provision for income taxes 0 0
- ---------------------------------------------------------------------
Net loss ($594,743) ($1,267,048)
=====================================================================
Net loss per share ($0.09) ($0.19)
Weighted average number of common
shares outstanding (000's) 6,718 6,531
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Six months ended Sept. 30,
Revenues 1996 1995
Product $4,619,487 $6,082,354
Contract research 578,483 1,480,927
--------- ---------
Total revenues 5,197,970 7,563,281
Cost of revenues
Product 3,616,894 4,191,697
Contract research 578,493 1,480,927
--------- ---------
Total cost of revenues 4,195,387 5,672,624
Gross profit 1,002,583 1,890,657
Operating expenses:
Research and development (Note 1) 1,495,815 1,002,964
Selling, general and administrative 1,454,845 2,020,095
--------- ---------
Loss from operations (1,948,077) (1,132,402)
Interest income, net 74,259 199,977
Interest expense 389 0
Other income (expense), net (816) 0
---------- ---------
Loss before provision for
income taxes (1,875,023) (932,425)
Provision for income taxes 0 0
- ---------------------------------------------------------------------
Net loss ($1,875,023) ($932,425)
=====================================================================
Net loss per share ($0.28) ($0.14)
Weighted average number of common
shares outstanding (000's) 6,702 6,542
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
MRS Technology, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six month period ended Sept. 30,
1996 1995
Cash flows from operating activities
Net loss ($1,875,023) ($932,425)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 375,720 343,361
Amortization 1,116 41,363
Changes in assets and liabilities
Accounts receivable (1,483,273) 2,134,371
Inventories 1,152,172 (1,495,945)
Deposits and other assets (113,428) 469,353
Accounts payable (1,068,022) (511,687)
Accrued expenses (179,036) (143,749)
Customer deposits from other 1,032,515 (840,000)
Other current liabilities 9,054 0
- -------------------------------------------------------------------------
Net cash used in operating activities (2,148,205) (935,358)
Cash flows from investing activities
Capital expenditures (40,070) (394,081)
Payment to ICT 0 (1,000,000)
- -------------------------------------------------------------------------
Net cash used in investing activities (40,070) (1,394,081)
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 32,556 0
Proceeds from employee stock option
exercise 43,925 78,434
Principal payments under capital
lease obligations (484) (5,220)
-----------------------------------------------------------------------
Net cash provided by financing activities 75,997 73,214
Net decrease in cash & equivalents (2,112,278) (2,256,225)
Cash and cash equivalents at beginning
of period 4,217,880 8,340,166
Cash and cash equivalents at end
of period $2,105,602 $6,083,941
=========================================================================
Supplemental cash flow information
Interest paid $389 $9,292
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
MRS Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The financial statements for the three and six month periods ended
September 30, 1996 and 1995 are unaudited and include all adjustments
which, in the opinion of management, are necessary to present fairly the
financial position at September 30, 1996 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, 1996.
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 results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations 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
six month periods ended September 30, 1996 and 1995, aggregate research
and product development costs were $1,984,000 and $2,482,000 respectively
including $488,000 and $1,479,000 of costs recovered under research and
development contracts. For the three month periods ended September 30,
1996 and 1995, aggregate research and product development costs were
$787,000 and $1,179,000, respectively including $66,000 and $714,000 of
costs recovered under research and development contracts.
2. Inventories
Inventories consist of the following as of September 30, 1996 and March
31, 1996:
(In Thousands) September 30, 1996 March 31, 1996
Work in process $5,095 $7,622
Purchased parts 583 471
Finished Goods 1,263 0
------ ------
$6,941 $8,093
3. Net Loss Per Common Share
Net loss per common share for the three and six months ended September 30,
1996 and September 30, 1995 are computed based upon the weighted average
number of common shares outstanding. In accordance with the treasury
stock method net income per share is calculated 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.
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 new "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 new "safe harbor"
provisions of the Act. Certain information contained herein, particularly
the information appearing under the headings "Business," "Results of
Operations," "Financial Condition" 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.
Overview
The Company's ability to obtain product orders and subsequent revenue and
profitability is not certain. If the company is not successful in its
efforts to obtain product orders, more aggressive cash management actions
will be instituted in order to maintain liquidity. These actions may
include further work force reductions and decrease in discretionary
spending.
Additionally, the Company continues to seek 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 transactions under consideration include
equity investments (minority or controlling), debt facilities, research
contracts, equipment purchase commitments, or any combination of these
transactions. The Company is committed to pursuing a strategy which would
maximize its long-term success and increase shareholder value.
There is no assurance that either the strategic relationship or actions
taken to manage existing cash flows will be successful. If such efforts
are not successful liquidity would be adversely affected.
RESULTS OF OPERATIONS
TOTAL REVENUES
Consolidated revenues for the three month periods ended September 30, 1996
and 1995 were approximately $3.5 million and $2.3 million, respectively,
an increase of $1.2 million. For the six month period ended September 30,
1996 and 1995 they were $5.2 and $7.6 million, respectively. Total
revenues for the first half decreased $2.4 million.
Product revenues for the three month period ended September 30, 1996 and
1995, were $3.4 and $1.1 million, respectively an increase of $2.3 million
quarter to quarter. This increase was due to the shipment of a
PanelPrinter in the current quarter versus no system shipment in the same
quarter last year. Revenues for the quarter ended September 30, 1995 were
the result of a substantial amount of work to rebuild and re-validate
PanelPrinters previously sold to one customer recovering from fire damage
in their facility.
Total product revenues for the first half of fiscal 1997 decreased by $1.5
million from $6.1 million during the first half of fiscal 1996. This
decrease was due to one system sale in the first half of fiscal 1997
versus two systems sales in the first half of fiscal 1996.
Contract research revenue for the six month period ended September 30,
1996 and 1995 was $0.6 and $1.5 million, a decrease of $0.9 million year
to year. Contract research revenue for the quarters ended September 30,
1996 and 1995 was $0.1 and $1.2 million. These decreases are due to the
reduced efforts on the Defense Advanced Research Projects Agency (DARPA)
project which should be completed in October 1996.
GROSS PROFIT
Gross profit as a percentage of total revenues was 23% and 1% for the
quarterly periods ended September 30, 1996 and 1995, respectively and was
19% and 25% for the six month periods ended September 30, 1996 and 1995,
respectively. Product related gross margins increased 20 percentage
points for the quarter ended September 30, 1996 compared to the same
period in 1995. The increase in product gross margin for the three month
period was primarily due to the shipment of a PanelPrinter in the period
ended September 30, 1996 versus the same period ended September 30, 1995
containing only product rework which carries significantly lower margins.
Product related gross margins decreased 9 percentage points for the six
month period ended September 30, 1996 compared to the same period in 1995.
The decrease was attributable to the first six months of fiscal 1996
having two system sales versus one system sale in the first half of fiscal
1997. Contract research margins for both the quarter and six month
periods ending September 30, 1996 and 1995 were 0%. Under the current
modification to the Company's DARPA contract the contract was changed to a
fixed price contract with no additional fee to be billed.
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
September 30, 1996 and 1995 were $0.7 million and $0.5 million,
respectively. Aggregate research and development spending before
allocation to cost of contract research revenue was $0.8 million and $1.2
million for the same quarterly periods. This $0.2 million increase in
spending was primarily a result of lower aggregate costs, mainly expense
materials and travel, offset by significantly lower amounts allocable to
the DARPA contract in the quarter ended September 30, 1996 compared to the
quarter ended September 30, 1995. For the six month periods ended
September 30, 1996 and 1995 research and development expenses were $1.5
and $1.0 million, respectively. Aggregate expenses before allocation to
cost of contract research was $2.0 and $2.5 million, respectively. The
$0.5 million increase for the six month period was attributable to a lower
level of effort on the ARPA contract as it enters its final stages.
Selling, general and administrative expenses for the three months ended
September 30, 1996 and 1995 were $0.7 and $0.9 million, respectively. For
the six month periods ended September 30, 1996 and 1995 expenses were $1.5
and $2.0 million, respectively. This decrease of $0.2 million for the
quarter and $0.5 for the six month period was primarily attributable to
continued efforts to monitor expenses and to take attrition where ever
possible and the six month decrease also reflects an unfavorable DARPA
rate adjustment in the quarter ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at September 30, 1996 of $2.1
million, a decrease of $2.1 million from the March 31, 1996 balance of
$4.2 million. The decrease in cash is primarily due to the loss from
operations in the first half of fiscal 1997.
The Company presently has available from a venture leasing company a $1.0
million lease line, which is collateralized by the equipment leased. As
of September 30, 1996, this line remains unused.
The Company has a working capital line of credit from Fleet Bank in the
amount of $7,500,000. Under the current line any advances are at the
discretion of the bank, and will be made or not made, in light of the
circumstances at the time of the borrower's request for the loan. There
are currently no amounts outstanding under this line.
Development efforts under the DARPA contact required increases in certain
resource levels as activity peaked at various phases of that project. To
the extent possible, the Company used temporary and contract resources to
meet these peak efforts. It is unlikely that any substantial follow-on
funding will be available from DARPA for fully commercializing the
technology developed under the DARPA contract. The Company is seeking
industrial partners who, through beta-site purchases, contract research
funding, minority equity investments, or any combination of these, would
provide the funding for this technology to reach its full commercial
potential as a product used extensively in high-volume manufacturing
applications. To the extent such funding is not obtained, the commercial
potential of this technology is considerably more limited, and the result
could be products focused more on R&D applications, manufacturing process
development and certain OEM subsystem opportunities.
The Company's ability to obtain product orders and subsequent revenue and
profitability is not certain. If the Company is not successful in its
efforts to obtain product orders, more aggressive cash management actions
will be instituted in order to maintain liquidity. These actions may
include further work force reductions and decreases in discretionary
spending.
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 transactions under active consideration
include minority equity investments, research contracts, equipment
purchase commitments, or any combination of these transactions.
There is no assurance that either the strategic relationship or actions
taken to manage existing cash flows will be successful. If such efforts
are not successful liquidity would be adversely affected.
SIGNIFICANT RISKS AND UNCERTAINTIES
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 or risk factors, including the ability to obtain new orders and
subsequent revenue, the ability to develop and make new products, the
ability to respond to competitive technology and pricing pressures,
adequate availability of major components, the ability to maintain key
employees for hardware, software, motions and imaging technicians,
economic conditions in both the United States and international markets,
delays in revenue recognition or contract performance or the inability to
obtain new research and development contracts to cover the current level
of expenses after completion of the current DARPA contract. The Company
may fail to meet any such planned, forecasted or projected results for
other reasons than those set forth above.
Product Revenue. PanelPrinters and optional equipment generally have
ranged in price from $1.8 to $3.0 million and 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 net income or loss, are
largely related to revenue recognition on sales of PanelPrinter units.
The Company continues to see an increasing number or prospects, but the
process for turning these into firm purchasing commitments which can be
disclosed is often lengthy.
Contract Research. A significant portion of the Company's revenue is
derived from research and development contracts with governmental, and in
prior years, commercial entities. The most significant of these research
funding sources has been DARPA. During fiscal 1996, the Company funded
approximately 54% of its aggregate research costs through the government
research contract. The Company intends to continue to fund part of its
research and development efforts through such contracts. However, there
are no assurances that the Company will be successful in obtaining such
contracts. The current DARPA contract should be completed in October,
1996. The revenue recognized in the first quarter of fiscal 1997 is
substantially all the revenue to be recognized in fiscal 1997 on the DARPA
contract.
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, authorized officers.
MRS Technology, Inc.
Date: November 12, 1996 /s/Griffith L. Resor, III
Griffith L. Resor, III
President, CEO and Director
(Principal Executive Officer)
Date: November 12, 1996 /s/ Patricia F. DiIanni
Patricia F. DiIanni
Treasurer, Chief Financial Officer
(Principal Financial Officer)