SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended October 5, 2002 | ||
| OR | ||
| [ ] | 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 (State or other jurisdiction of incorporation or organization) |
95-3601802 (I.R.S. Employer Identification No.) |
4905 East La Palma Avenue
Anaheim, California 92807
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (714) 970-0300
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 X NO _____
The number of shares outstanding of the issuer’s common stock, $.001 par value, as of November 8, 2002 was 32,911,994.
MTI TECHNOLOGY CORPORATION
INDEX
| Page | ||||||
PART I |
FINANCIAL INFORMATION | |||||
Item 1.
|
Financial Statements |
|||||
Condensed Consolidated Balance Sheets as of October 5,
2002 and April 6, 2002
|
3 |
|||||
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended October 5, 2002 and October 6, 2001
|
4 |
|||||
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended October 5, 2002 and October 6, 2001
|
5 |
|||||
Notes to Condensed Consolidated Financial Statements
|
6 |
|||||
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
10 |
||||
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
17 |
||||
Item 4.
|
Controls and Procedures
|
17 |
||||
PART II |
OTHER INFORMATION | |||||
Item 1.
|
Legal Proceedings
|
18 |
||||
Item 4.
|
Submission of Matters to a vote of Security Holders
|
18 |
||||
Item 6.
|
Exhibits and Reports on Form 8-K
|
18 |
||||
SIGNATURES
|
19 |
|||||
CERTIFICATIONS
|
20 |
|||||
EXHIBIT INDEX
|
22 |
|||||
2
PART I
FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
MTI TECHNOLOGY CORPORATION
| OCTOBER 5, | APRIL 6, | |||||||||
| 2002 | 2002 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 6,202 | $ | 8,420 | ||||||
Accounts receivable, net |
12,826 | 18,153 | ||||||||
Inventories |
9,520 | 14,787 | ||||||||
Prepaid expenses and other receivables |
6,489 | 7,016 | ||||||||
Total current assets |
35,037 | 48,376 | ||||||||
Property, plant and equipment, net |
4,241 | 7,541 | ||||||||
Goodwill, net |
5,184 | 5,184 | ||||||||
Other |
151 | 597 | ||||||||
Total assets |
$ | 44,613 | $ | 61,698 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Note payable |
1,685 | 1,900 | ||||||||
Current portion of capital lease obligations |
154 | 135 | ||||||||
Accounts payable |
6,171 | 9,413 | ||||||||
Accrued liabilities |
8,730 | 9,308 | ||||||||
Accrued restructuring charges |
3,493 | 4,473 | ||||||||
Deferred income |
12,759 | 14,884 | ||||||||
Total current liabilities |
32,992 | 40,113 | ||||||||
Capital lease obligations, less current portion |
376 | 461 | ||||||||
Other |
1,343 | 1,011 | ||||||||
Total liabilities |
34,711 | 41,585 | ||||||||
Stockholders’ equity: |
||||||||||
Preferred stock, $.001 par value; authorized 5,000 shares;
issued and outstanding, none |
— | — | ||||||||
Common stock, $.001 par value; authorized 80,000 shares; issued
(including treasury shares) and outstanding 32,862 shares at
October 5, 2002 and April 6, 2002 |
33 | 33 | ||||||||
Additional paid-in capital |
134,645 | 134,887 | ||||||||
Accumulated deficit |
(121,134 | ) | (110,702 | ) | ||||||
Less cost of treasury stock (47 and 187 shares at October 5, 2002
and April 6, 2002, respectively) |
(151 | ) | (426 | ) | ||||||
Accumulated other comprehensive loss |
(3,491 | ) | (3,679 | ) | ||||||
Total stockholders’ equity |
9,902 | 20,113 | ||||||||
Total liabilities and stockholders’ equity |
$ | 44,613 | $ | 61,698 | ||||||
See accompanying notes to condensed consolidated financial statements.
3
MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||||
| OCTOBER 5, | OCTOBER 6, | OCTOBER 5, | OCTOBER 6, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Net product revenue |
$ | 11,140 | $ | 19,877 | $ | 18,274 | $ | 37,147 | |||||||||||
Service revenue |
11,180 | 12,670 | 22,085 | 25,220 | |||||||||||||||
Total revenue, including $13 and $150 from related
parties in the second quarter of fiscal 2002 and
2001, respectively, and $39 and $350 from related
parties in the first six months of fiscal 2002
and 2001, respectively |
22,320 | 32,547 | 40,359 | 62,367 | |||||||||||||||
Product cost of revenue |
8,026 | 14,736 | 17,868 | 31,522 | |||||||||||||||
Service cost of revenue |
7,269 | 7,466 | 14,428 | 15,132 | |||||||||||||||
Total cost of revenue |
15,295 | 22,202 | 32,296 | 46,654 | |||||||||||||||
Gross profit |
7,025 | 10,345 | 8,063 | 15,713 | |||||||||||||||
Operating expenses: |
|||||||||||||||||||
Selling, general and administrative |
7,079 | 10,302 | 14,904 | 22,697 | |||||||||||||||
Research and development |
828 | 3,448 | 3,571 | 6,924 | |||||||||||||||
Restructuring charges |
— | — | 1,046 | — | |||||||||||||||
Total operating expenses |
7,907 | 13,750 | 19,521 | 29,621 | |||||||||||||||
Operating loss |
(882 | ) | (3,405 | ) | (11,458 | ) | (13,908 | ) | |||||||||||
Interest and other income, net |
1,022 | 2,478 | 1,051 | 2,395 | |||||||||||||||
Equity in net loss of affiliate |
— | (1,760 | ) | — | (3,463 | ) | |||||||||||||
Gain (loss) on foreign currency
transactions |
16 | (53 | ) | 24 | 49 | ||||||||||||||
Income (loss) before income taxes |
156 | (2,740 | ) | (10,383 | ) | (14,927 | ) | ||||||||||||
Income tax expense |
23 | — | 49 | 24,300 | |||||||||||||||
Net income (loss) |
$ | 133 | $ | (2,740 | ) | $ | (10,432 | ) | $ | (39,227 | ) | ||||||||
Net income (loss) per share: |
|||||||||||||||||||
Basic and diluted |
$ | 0.00 | $ | (0.08 | ) | $ | (0.32 | ) | $ | (1.21 | ) | ||||||||
Weighted-average shares used in per share
computations: |
|||||||||||||||||||
Basic |
32,815 | 32,483 | 32,778 | 32,450 | |||||||||||||||
Diluted |
32,829 | 32,483 | 32,778 | 32,450 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| SIX MONTHS ENDED | |||||||||||
| OCTOBER 5, | OCTOBER 6, | ||||||||||
| 2002 |
2001 |
||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
$ | (10,432 | ) | $ | (39,227 | ) | |||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
|||||||||||
Depreciation and amortization |
1,750 | 1,870 | |||||||||
Provision for (recovery of) sales returns and losses on
accounts receivable, net |
(462 | ) | 567 | ||||||||
Net loss in equity of affiliate |
— | 3,463 | |||||||||
Gain on sale of investment |
(1,070 | ) | — | ||||||||
Provision for excess and obsolete inventory |
3,205 | 6,843 | |||||||||
Loss on disposal of fixed assets |
952 | 214 | |||||||||
Deferred income tax expense |
— | 24,300 | |||||||||
Deferred income |
(1,790 | ) | (3,586 | ) | |||||||
Restructuring charges |
1,046 | — | |||||||||
Non-cash compensation from issuance of option/warrant |
(15 | ) | — | ||||||||
Changes in assets and liabilities: |
|||||||||||
Accounts receivable |
5,732 | 1,325 | |||||||||
Inventories |
2,461 | 7,007 | |||||||||
Prepaid expenses, other receivables and other assets |
742 | (1,352 | ) | ||||||||
Accounts payable |
(3,271 | ) | (599 | ) | |||||||
Accrued and other liabilities |
(2,188 | ) | (2,644 | ) | |||||||
Net cash used in operating activities |
(3,340 | ) | (1,819 | ) | |||||||
Cash flows from investing activities: |
|||||||||||
Capital expenditures for property, plant and equipment |
(115 | ) | (2,618 | ) | |||||||
Proceeds from the sale of investment |
1,070 | — | |||||||||
Proceeds from the sale of property, plant and equipment |
7 | — | |||||||||
Net cash provided by (used in) investing activities |
962 | (2,618 | ) | ||||||||
Cash flows from financing activities: |
|||||||||||
Borrowings under line of credit |
2,750 | — | |||||||||
Proceeds from issuance of common stock, treasury stock and exercise of
options and warrants |
48 | 353 | |||||||||
Repayment of notes payable |
(1,900 | ) | — | ||||||||
Repayment of line of credit |
(1,065 | ) | — | ||||||||
Payment of capital lease |
(66 | ) | (59 | ) | |||||||
Net cash provided by (used in) financing activities |
(233 | ) | 294 | ||||||||
Effect of exchange rate changes on cash |
393 | 61 | |||||||||
Net decrease in cash and cash equivalents |
(2,218 | ) | (4,082 | ) | |||||||
Cash and cash equivalents at beginning of period |
8,420 | 16,320 | |||||||||
Cash and cash equivalents at end of period |
$ | 6,202 | $ | 12,238 | |||||||
Supplemental disclosures of cash flow information: |
|||||||||||
Cash paid during the period for: |
|||||||||||
Interest |
$ | 88 | $ | 36 | |||||||
Income taxes |
34 | 142 | |||||||||
See accompanying notes to condensed consolidated financial statements.
5
MTI TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Overview | |
| The interim condensed consolidated financial statements included herein have been prepared by MTI Technology Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such SEC rules and regulations; nevertheless, the management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 6, 2002. In the opinion of management, the condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position of the Company as of October 5, 2002 and April 6, 2002, the condensed consolidated results of operations for the three and six month periods ended October 5, 2002 and October 6, 2001, and cash flows for the six months ended October 5, 2002 and October 6, 2001. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. | ||
| References to amounts are in thousands, except per share data, unless otherwise specified. Certain prior year amounts have been reclassified to conform with the fiscal 2003 presentation. | ||
| 2. | Restructuring | |
| During the first quarter of fiscal year 2003, the Company recorded a restructuring charge of $1,046 which consisted of charges of $545 related to a headcount reduction of 39 employees, or 15% of the Company’s workforce, and $501 related to the disposal or abandonment of fixed assets. Of the 39 employees terminated, 14, 3, 6, 1, 14, and 1 were from the Sales, Marketing, General and Administrative, Field Services, Research and Development, and Manufacturing departments, respectively. The expected cash impact of the restructuring charge is $545 related to severance, of which none and $396 was paid in the first and second quarters of fiscal year 2003, respectively. The remaining amount is expected to be paid during the third and fourth quarters of fiscal year 2003. The Company completed consolidating its manufacturing facility to Dublin, Ireland, in July 2002. | ||
| The amount accrued for restructuring activities as of October 5, 2002, was as follows: |
Abandoned facilities: |
||||||
Balance as of April 6, 2002 |
$ | 4,266 | ||||
Less: Current year utilization |
(922 | ) | ||||
Balance as of October 5, 2002 |
3,344 | |||||
Workforce reduction: |
||||||
Balance as of April 6, 2002 |
207</ | |||||