<PAGE>
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 April 1, 1995
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 0-3704
NAI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New York 11-1798773
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Woodbury Road, Woodbury, New York 11797-2530
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 364-4433
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
----- -----
As of May 8, 1995, 7,445,567 shares of NAI Technologies, Inc.'s $.10 par value
Common Stock were outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
[CAPTION]
<TABLE>
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Apr. 1, Dec. 31,
1995 1994
(Audited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,346 $ 1,658
Accounts receivable, net 11,147 12,508
Income taxes receivable 786 4,732
Inventories, net 15,170 14,052
Deferred tax assets 379 378
Other current assets 746 871
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Total current assets 31,574 34,199
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Property, plant and equipment, net 7,514 7,657
Excess of cost over fair value of assets acquired, net 10,707 10,865
Other assets 1,069 999
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Total assets $50,864 $53,720
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - $ 127
Current installments of long-term debt 15,707 2,179
Accounts payable 7,454 7,484
Accrued payroll and commissions 376 535
Other accrued expenses 4,847 6,435
Income taxes payable 861 774
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Total current liabilities 29,245 17,534
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Notes payable - 6,000
Long-term debt 344 7,990
Other accrued expenses 1,579 1,522
Deferred income taxes 378 378
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Total liabilities 31,546 33,424
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Shareholders' Equity:
Capital Stock:
Preferred stock, no par value, 2,000,000
shares authorized and unissued - -
Common stock, $.10 par value, 10,000,000
shares authorized; shares issued: 7,195,567
in 1995 and 7,174,592 in 1994 720 717
Capital in excess of par value 14,740 14,718
Foreign currency translation adjustment 198 107
Retained earnings 3,660 4,754
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Total shareholders' equity 19,318 20,296
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Total liabilities and shareholders' equity $50,864 $53,720
============================================================================
</TABLE>
<PAGE>
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
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For the Three Months Ended
--------------------------
Apr. 1, Apr. 2,
1995 1994
<S> <C> <C>
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Net sales $12,687 $15,516
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Cost of sales 10,169 13,961
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Gross margin 2,518 1,555
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Selling expense 1,264 2,266
General and administrative expense 1,351 1,924
Research and development 541 1,011
Restructuring expense - 7,321
Other 30 150
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Total expenses 3,186 12,672
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Operating loss (668) (11,117)
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Non-operating income (expense)
Interest income 54 12
Interest expense (394) (314)
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(340) (302)
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Loss before income taxes (1,008) (11,419)
Provision for (recovery of) income taxes 86 (4,079)
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Net loss $(1,094) $(7,340)
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Loss per common share $( 0.15) $( 1.08)
================================================================================
Average shares outstanding 7,190 6,781
================================================================================
</TABLE>
<PAGE>
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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For the Three Months Ended
--------------------------
Apr. 1, Apr. 2,
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,094) $(7,340)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 549 810
Gain on disposal of property, plant & equipment (4) -
Change in assets and liabilities, excluding
effects from acquisitions and
foreign currency adjustments:
Accounts receivable 1,361 2,734
Inventories (1,118) 1,983
Accounts payable and other accrued expenses (1,720) 6,711
Income taxes 4,032 (4,308)
Other, net 55 640
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Net cash flow provided by operating activities 2,061 1,230
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Cash Flows from Investing Activities:
Contingent payment on purchase of KMS Advanced Products - (71)
Purchase of property, plant and equipment (239) (348)
Proceeds from sale of property, plant and equipment 6 3
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Net cash used in investing activities (233) (416)
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Cash Flows from Financing Activities:
Issuances of notes payable 6 5,779
Payments of notes payable (133) (5,053)
Payments of long-term debt (118) (1,123)
Receipts of notes receivable - 106
Proceeds from exercise of stock options
and stock purchase plan 25 54
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Net cash used in financing activities (220) (237)
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Effect of foreign currency exchange rates on cash 80 (14)
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Net increase in cash and cash equivalents 1,688 563
Cash and cash equivalents at beginning of year 1,658 1,717
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Cash and cash equivalents at end of period $ 3,346 $ 2,280
================================================================================
Supplemental disclosure of cash flow information:
Cash paid for (refunded):
Interest $ 371 $ 292
Income taxes $(3,961) $ 176
</TABLE>
<PAGE>
OTHER FINANCIAL INFORMATION
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. The Company believes that the disclosures contained
herein are adequate to make the information presented not misleading. The
consolidated statements of operations for the three months ended April 1, 1995
are not necessarily indicative of the results to be expected for the full year.
These unaudited financial statements should be read in conjunction with the
audited financial statements and accompanying notes included in the Company's
1994 Annual Report on Form 10-K for the year ended December 31, 1994.
INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
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Apr. 1, Dec. 31,
1995 1994
(Audited)
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<S> <C> <C>
(In thousands of dollars)
Raw materials and components $10,020 $ 9,698
Work-in-process 4,535 3,849
Finished goods 615 662
Unliquidated progress payments - (157)
- ----------------------------------------------------------------------------
Inventories, net $15,170 $14,052
============================================================================
</TABLE>
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
First Quarter 1995 Compared with First Quarter 1994
The nature of the Company's business is such that year to year changes in sales
levels are predominantly due to changes in shipping volume or product mix rather
than changing sales prices. Net sales for the first quarter of 1995 were $12.7
million, an 18% decrease when compared with $15.5 million for the same period in
1994.
The following chart provides the sales breakdown by product line:
<TABLE>
<CAPTION>
In thousands of dollars 1995 1994 % Change
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<S> <C> <C> <C>
Electronic Systems Segment
Systems $ 4,477 $ 5,609 (20%)
Component 4,631 4,357 6%
Service 1,849 3,327 (44%)
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Total Electronic Systems Segment 10,957 13,293 (18%)
Telecommunications Segment
Line treatment 1,199 1,380 (13%)
Test equipment 513 843 (39%)
Data comm 18 0 100%
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Total Telecommunications Segment 1,730 2,223 (22%)
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TOTAL $12,687 $15,516 (18%)
======================================
</TABLE>
Sales in the Electronic Systems segment (net of intercompany eliminations)
decreased 18% to $11.0 million from $13.3 million for the same period in 1994.
The sales decrease was primarily attributable to lower systems revenue and
service revenue, partially offset by higher component revenue. The decrease in
systems revenue was principally attributable to delayed shipments at Codar. The
Company has experienced significant delays in shipping products since mid-1994
when it consolidated its military products division located in Hauppauge, NY
into Codar Technology, Inc., its wholly owned subsidiary in Longmont, CO. The
decrease in service revenue is primarily attributable to the lower revenue from
the Codar Division.
In recent years the Company has reduced its dependency on the United States
defense budget by expanding its non-military business operations. However, the
Company still expects approximately 50% of 1995 sales to be directly to the
military or through prime contractors to the military. The Company is not aware
of any programs in which it participates that are specifically targeted for
termination or curtailment. The Company's products are utilized on many
different U.S. Government programs which reduces the adverse impact of
cancelling a single specific program. However, changes in future U.S. defense
spending levels could impact the Company's future sales volume.
Sales in the Telecommunications segment decreased 22% to $1.7 million as
compared to $2.2 million for the same period in 1994. The decrease in sales
<PAGE>
was attributable to lower test equipment and line treatment revenues which were
adversely affected by lower orders from the regional Bell operating companies
and foreign telecommunications companies primarily due to their cost cutting
initiatives. The Company believes this decline is temporary and that revenue
will increase in the latter part of 1995 as the Company starts delivery of its
new Enhanced Line Powered Amplifier products.
The gross margin percentage for the first quarter 1995 was 19.8% as compared
with 10.0% for the same period in 1994. The 1995 gross margin percentage, while
better than 1994, was still below historical standards as a result of reduced
shipping volumes and significant rework costs experienced at Codar on products
transferred from the Military Products division in Hauppauge, NY. The 1994 gross
margin percentage was adversely affected by a $2.2 million charge to operations
and an unfavorable mix of high and low margin product deliveries. The $2.2
million charge to operations was comprised of inventory write-offs and cost
overruns associated with the start-up production of two new programs
(principally the NST-II program which is an enhanced version of the NST-I).
Lower margins are expected to continue at least during the first half of 1995 as
the Company continues its consolidation and repositioning efforts.
Selling expense for the first quarter 1995 was $1.3 million as compared with
$2.3 million for the same period in 1994. This decrease is attributable to
savings associated with the consolidation of the military products division in
1994.
General and administrative expenses for the first quarter 1995 were $1.4 million
as compared with $1.9 million for the same period in 1994. This decrease is
primarily attributable to savings associated with the previously mentioned
restructuring in 1994.
Company-sponsored research and development expenditures for the first quarter
1995 were $0.5 million as compared with $1.0 million for the same period in
1994. This decrease is attributable to savings associated with the previously
mentioned restructuring and the change in mix between Company-sponsored research
and development and customer-funded research and development. A key component to
the Electronic Systems' segment strategy is to focus on system integration
business. Although systems integration work by its nature will require
significant engineering content, such costs must be classified as contract costs
and charged to cost of sales as opposed to Company-sponsored research and
development (IR&D). Therefore, the amount charged to IR&D is expected to
decrease from 1994 levels.
For the first quarter 1995 the Company had an operating loss of $0.7 million as
compared with $11.1 million for the same period in 1994. The operating loss is
primarily attributable to lower sales volume and margins and continuing
inefficiencies. The 1994 operating loss included a $7.3 million restructuring
expense.
Interest expense, net of interest income, remained the same at $0.3 million in
the first quarters of 1995 and 1994.
The effective income tax recovery rate is below the combined statutory federal
and state rates for the first quarter of 1995. The Company was unable to
recognize a tax benefit for its loss in the first quarter of 1995 due to
uncertainties as to whether or not a future benefit will be realized. Any
earnings in 1995 will not be taxed at the statutory rate.
<PAGE>
For the first quarter of 1995 the Company had a net loss of $1.1 million as
compared with a net loss of $7.3 million in the first quarter of 1994. Loss per
share was ($0.15) as compared with $(1.08) for the same period in 1994, based on
a weighted average of 7.2 million and 6.8 million shares outstanding,
respectively. The 1994 loss per share includes a pre-tax restructuring charge of
$7.3 million.
Liquidity and Capital Resources
Although the Company reported a net loss of $1.1 million in the first quarter of
1995, it still generated a positive cash flow of $2.1 million from operations
due to the receipt of a Federal tax refund of $4.0 million attributable to a tax
loss carryback. Company operations have historically provided a positive cash
flow. However, the Company is currently experiencing financial difficulties due
to lower shipping volumes.
On April 7, 1995 the Company entered into an amended and restated credit
agreement with its two primary lending institutions. Under the terms of the new
agreement, the existing term debt and lines of credit were converted into a
revolving credit line in exchange for a cash payment of $100,000 and the
issuance of 250,000 shares of the Company's common stock. The new agreement
requires quarterly principal payments, commencing in September 1995, of
$875,000. The agreement, unless extended, expires on January 15, 1996 at which
time the remaining principal balance of $13,425,000 will be due. The agreement
allows for an extended maturity date to April 15, 1996 under certain conditions.
The repayment of the amount due will be dependent upon the Company's ability
either to obtain alternate financing or to restructure the remaining balance
due. The Company is considering several alternatives to achieve this, including
the sale of common or preferred stock, the issuance of convertible debt, a
business combination, the sale of all or a portion of the Company and the
establishment of a borrowing relationship with new lending institutions. The
Company has engaged Needham & Company, Inc. as its investment advisor to assist
in this process. The ability of the Company to accomplish this will be dependent
upon the Company's business prospects and operating results in 1995. The
restructuring actions taken in 1994 have significantly reduced the expense
structure of the Company. However, it is not certain that the Company will be
able to achieve the revenue level necessary to return to profitability. The
Company is taking action to minimize its cash outlays by deferring or
eliminating discretionary expenses and capital asset purchases. The Company must
increase its shipment rate to an acceptable level within the near future, or
obtain additional financing, in order to meet its cash flow requirements during
1995.
At April 1, 1995 the Company's long-term secured debt totaled $16.1 million of
which current installments were $15.7 million. This compares to $16.2 million at
December 31, 1994 of which current installments were $2.2 million. The Company's
long-term borrowings, secured by plant and equipment, bear interest at rates
ranging from 70% of prime (9.0% at April 1, 1995) to 12.43%. With the
acquisition of Lynwood, the Company assumed a 5 year business term loan in the
amount of $0.3 million, with interest at 2% above the U.K. base rate (6.75% at
April 1, 1995).
Cash and cash equivalents totaled $3.3 million at April 1, 1995 as compared to
$1.7 million at December 31, 1994. Cash provided by operating activities
<PAGE>
amounted to $2.1 million in the first quarter of 1995 as compared to $1.2
million in the first quarter of 1994. In January 1995, the Company received a
Federal tax refund of $4.0 million.
Cash of $0.2 million was used in investing activities during the first quarter
of 1995. The major component was comprised of $0.2 million for the purchase of
property, plant and equipment. Management expects total 1995 capital
expenditures to be slightly higher than the 1994 expenditures. However, the
Company expects to receive approximately $2.3 million from the sale of real
estate over the next two years, including $1.7 million from the sale of its
vacated manufacturing facility in Hauppauge, NY. Such sale is expected to take
place in May 1995, and requires a down payment of $0.6 million with a note for
the balance payable in two years. The down payment will be applied against
existing debt under the revolving credit agreement.
During the first quarter of 1995, the Company made debt payments of $0.1 million
and payments of notes payable of $0.1 million.
Inflation
The Company's financial statements are prepared in accordance with historical
accounting systems, and therefore do not reflect the effect of inflation. The
impact of changing prices on the financial statements is not considered to be
significant.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K
None.
<PAGE>
S I G N A T U R E S
Pursuant to the requirements 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.
NAI TECHNOLOGIES, INC.
(Registrant)
DATE May 12, 1995 By:\s\Richard A. Schneider
----------------------- ---------------------------
Richard A. Schneider
Executive Vice President
(On behalf of the registrant and as
Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-01-1995
<CASH> 3,346
<SECURITIES> 0
<RECEIVABLES> 11,933
<ALLOWANCES> 0
<INVENTORY> 15,170
<CURRENT-ASSETS> 31,574
<PP&E> 14,275
<DEPRECIATION> ( 6,761)
<TOTAL-ASSETS> 50,864
<CURRENT-LIABILITIES> 29,245
<BONDS> 344
<COMMON> 720
0
0
<OTHER-SE> 18,598
<TOTAL-LIABILITY-AND-EQUITY> 50,864
<SALES> 12,687
<TOTAL-REVENUES> 12,687
<CGS> 10,169
<TOTAL-COSTS> 13,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340
<INCOME-PRETAX> ( 1,008)
<INCOME-TAX> 86
<INCOME-CONTINUING> ( 1,094)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 1,094)
<EPS-PRIMARY> ( 0.15)
<EPS-DILUTED> 0
</TABLE>
