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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 March 30, 1996
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)
2405 Trade Centre Avenue, Longmont, Colorado 80503-7602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 776-5674
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 7, 1996, 7,459,437 shares of NAI Technologies, Inc.'s $.10 par value
Common Stock were outstanding.
Page 1 of 11 Pages
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NAI TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Facing Sheet 1
Index 2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3
March 30, 1996 and December 31, 1995
Consolidated Statements of Operations - 4
Three months ended March 30, 1996 and
April 1, 1995
Consolidated Statements of Cash Flows - 5
Three months ended March 30, 1996 and
April 1, 1995
Other Financial Information 6
Item 2. Management's Discussion and Analysis of 7-9
Financial Condition and Results of Operations
PART II. Other Information
Item 4. Submission of Matter to a Vote of Security Holders 10
Item 5. Other Events 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
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<TABLE>
<CAPTION>
March 30, Dec. 31,
1996 1995
(Audited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,425 $ 2,605
Accounts receivable, net 12,137 13,735
Inventories, net 13,217 11,995
Deferred tax asset 384 384
Other current assets 771 813
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Total current assets 31,934 29,532
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Property, plant and equipment, net 5,233 5,351
Excess of cost over fair value of assets acquired, net 10,181 10,339
Notes receivable -- 1,190
Other assets 3,088 1,600
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Total assets $50,436 $48,012
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,505 $ 9,797
Current installments of long-term debt 2,175 2,177
Accrued payroll and commissions 462 768
Other accrued expenses 4,602 6,376
Income taxes payable 495 370
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Total current liabilities 16,239 19,488
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Long-term debt 20,568 15,573
Other accrued expenses 2,497 2,481
Deferred income taxes 384 384
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Total liabilities 39,688 37,926
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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, 25,000,000
shares authorized; shares issued: 7,459,437
in 1996 and 7,195,567 in 1995 746 746
Capital in excess of par value 17,305 16,162
Foreign currency translation adjustment 12 43
Retained earnings (7,315) (6,865)
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Total shareholders' equity 10,748 10,086
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Total liabilities and shareholders' equity $50,436 $48,012
===============================================================================
</TABLE>
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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
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March 30, Apr. 1,
1996 1995
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<S> <C> <C>
Net sales $16,503 $12,687
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Cost of sales 13,238 10,169
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Gross margin 3,265 2,518
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Selling expense 1,114 1,264
General and administrative expense 1,370 1,351
Research and development 367 541
Other 164 30
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Total expenses 3,015 3,186
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Operating income (loss) 250 (668)
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Non-operating income (expense)
Interest income 55 54
Deferred debt expense (55) --
Interest expense (565) (394)
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(565) (340)
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Loss before income taxes (315) (1,008)
Provision for (recovery of) income taxes 135 86
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Net loss $(450) $ (1,094)
===============================================================================
Loss per common share $(0.06) $ (0.15)
===============================================================================
Average shares outstanding 7,459 7,190
===============================================================================
</TABLE>
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NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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For the Three Months Ended
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March 30, Apr. 1,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (450) $(1,094)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 598 549
Gain on disposal of property, plant and equipment - (4)
Loss on sale of notes receivable 89 -
Change in assets and liabilities, excluding effects
from acquisitions and foreign currency adjustments:
Accounts receivable 1,598 1,361
Inventories (1,222) (1,118)
Accounts payable and other accrued expenses (3,356) (1,720)
Income taxes 125 4,032
Other, net (1,076) 55
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Net cash flow provided by operating activities (3,694) 2,061
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (245) (239)
Proceeds from sale of property, plant and equipment - 6
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Net cash used in investing activities (245) (233)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of notes payable 53 6
Issuance of 12% Convertible Notes 5,742 -
Payments of notes payable (53) (133)
Payments of long-term debt (57) (118)
Receipts of notes receivable 1,101 -
Proceeds from exercise of stock options
and stock purchase plan - 25
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Net cash used in financing activities 6,786 (220)
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Effect of foreign currency exchange rates on cash (27) 80
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Net increase in cash and cash equivalents 2,820 1,688
Cash and cash equivalents at beginning of year 2,605 1,658
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Cash and cash equivalents at end of period $5,425 $ 3,346
===============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for (refunded):
Interest $ 417 $ 371
Income taxes $ 3 $(3,961)
===============================================================================
</TABLE>
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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 March 30, 1996
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
1995 Annual Report on Form 10-K for the year ended December 31, 1995.
INVENTORIES
Inventories are summarized by major classification as follows:
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<TABLE>
<CAPTION>
March 30, Dec. 31,
1996 1995
(Audited)
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(In thousands of dollars)
<S> <C> <C>
Raw materials and components $ 8,274 $ 8,159
Work-in-process 5,006 4,121
Finished goods 445 477
Unliquidated progress payments (508) (762)
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Inventories, net $13,217 $11,995
===============================================================================
</TABLE>
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
First Quarter 1996 Compared with First Quarter 1995
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 1996 were $16.5
million, a 30% increase when compared with $12.7 million for the same period in
1995.
The following chart provides the sales breakdown by subsidiary:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 % Change
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<S> <C> <C> <C>
ELECTRONIC SYSTEMS SEGMENT
Codar Technology, Inc. $ 8,191 $ 5,585 47%
NAI Systems Division 3,079 2,743 12%
Lynwood Scientific Dev. Ltd. 3,220 2,862 13%
Intercompany (109) (233)
-----------------------------------
Total Electronic Systems Segment 14,381 10,957 31%
TELECOMMUNICATIONS SEGMENT
Wilcom, Inc. 2,122 1,730 23%
-----------------------------------
Total Telecommunications Segment 2,122 1,730 23%
-----------------------------------
TOTAL $16,503 $12,687 30%
===================================
</TABLE>
Sales in the Electronic Systems segment (net of intercompany eliminations)
increased 35% to $14.4 million from $11.0 million for the same period in 1995.
Each of the NAI subsidiaries recorded sales increases in the first quarter of
1996 as compared to 1995. The largest increase was recorded by Codar and is
attributable to increased shipping volumes. The increases at Systems Division
and Lynwood are representative of the increased levels of business at both
companies.
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 1996 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 canceling
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 increased 23% to $2.1 million as
compared to $1.7 million for the same period in 1995. The increase in sales was
attributable to increased line treatment revenues principally attributable to
the Company's new telephone line quality improvement products as they continue
to gain acceptance with the Bell operating companies and independent telephone
companies.
The gross margin percentage for the first quarter 1996 was 19.8%, the same as
the comparable period in 1995. The following chart provides the gross margin
percentage by subsidiary.
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Codar Technology, Inc. 8.9% 3.0%
NAI Systems Division 20.7% 41.2%
Lynwood Scientific Development Ltd. 34.0% 28.9%
Wilcom, Inc. 31.7% 22.7%
</TABLE>
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The margin improvement at Codar is attributable to increased shipping volumes
and cost reduction efforts initiated in late 1995 and early 1996. Codar's
operating performance is still adversely impacted by several large contracts for
which the gross margins are -0-. These contracts are expected to be
substantially completed during the second quarter of 1996. The Company expects
the Codar gross margin percentage to continue to improve during the year.
The Systems Division's first quarter 1995 gross margin was favorably impacted by
the completion of a job for which most of the profit was recognized upon final
delivery of the contracted items.
The Lynwood and Wilcom gross margins were favorably impacted by increased
shipping volumes and cost reduction efforts completed in the fourth quarter of
1995.
Selling expense for the first quarter of 1996 was $1.1 million as compared with
$1.3 million for the same period in 1995. The 18% decrease despite an increase
in sales of 30% is attributable to the Company's desire to reduce its operating
expenses.
General and administrative expenses for the first quarter 1996 were $1.4
million, unchanged for the same period in 1995. A decline in the Corporate
office expense was offset by an increase at Codar due mostly to a change in the
methodology used in classifying certain expenses. The Company expects the rate
of the first quarter general and administrative expenditures to be relatively
constant for the remainder of 1996.
Company-sponsored research and development expenditures for the first quarter of
1996 were $0.4 million as compared with $0.5 million for the same period in
1995. The Company expects that the level of the first quarter 1996 IR&D
expenditures will be relatively constant for the remainder of 1996.
For the first quarter of 1996, the Company had operating income of $0.3 million
as compared with an operating loss of $0.7 million for the same period in 1995.
Interest expense, net of interest income, was $0.6 million for the first quarter
of 1996 as compared with $0.3 million for the same period in 1995.
The Company accrued an income tax expense of $0.135 million despite a pre-tax
loss of $0.315 million. The entire tax expense pertains to the Company's Lynwood
subsidiary located in the U.K. Lynwood's earnings are taxed in the U.K. and,
while the Company has a U.S. net operating loss carry-forward, it is required to
pay taxes in the U.K. The Company is unable to recognize the tax benefit
associated with its U.S. operating loss carry-forwards due to uncertainties as
to whether or not a future benefit will be realized. Once the Company returns to
profitability, the benefits of such a tax loss carry-forward will be recognized.
For the first quarter of 1996 the Company had a net loss of $0.5 million as
compared with a net loss of $1.1 million in the first quarter of 1995. Loss per
share was $(0.06) as compared with $(0.15) per share for the same period in
1995, based on a weighted average of 7.5 million and 7.2 million shares
outstanding, respectively.
Liquidity and Capital Resources
On February 15, 1996, February 23, 1996 and February 29, 1996, the Company
issued an aggregate of $8,242,000 of 12% Convertible Subordinated Promissory
Notes due January 15, 2001 (the "Notes") and warrants to purchase an aggregate
of 2,060,500 shares of the Company's Common Stock (the "Warrants"). The Notes
are convertible by the holders into shares of Common Stock at a price equal to
$2.00 per share, subject to adjustment if the Company fails to meet certain
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earnings thresholds and in certain other events. Interest on the Notes is
payable quarterly in arrears on January 15, April 15, July 15 and October 15 of
each year, commencing April 15, 1996. The Notes mature on January 15, 2001. The
Notes may be prepaid by the Company without premium or penalty at any time after
January 15, 1999. The Notes are unsecured obligations of the Company and contain
certain restrictions of the Company including a negative pledge of the Company's
assets not otherwise encumbered by the holders of the senior indebtedness.
In addition to the Warrants issued with the Notes, the Company issued an
aggregate of 2,024,200 Warrants to the lead investor and the placement agent.
All Warrants entitle the holders thereof to purchase shares of Common Stock at
any time and from time to time on or before February 15, 2002 at an exercise
price equal to $2.50 per share of Common Stock, subject to adjustment in certain
events.
The Company received total proceeds (net of placement agency fees and expenses)
of $7,442,081 ($2,500,000 was received prior to December 31, 1995) from the sale
of the Notes and the Warrants upon completion of the offering.
On February 15, 1996 the Company entered into an amendment to its credit
agreement with its bank lenders which amended and extended the payment provision
contained therein and reset certain financial covenants on more favorable terms
for the Company. The revised credit agreement provides for quarterly principal
payments of $500,000, beginning on March 31, 1997 and paid through December 31,
1998. The remaining principal balance is due on January 15, 1999. Interest is
payable monthly at the rate of 1 3/4% above prime. The loan covenants require
that the Company maintain certain minimum levels of net worth, current ration
and quick ration. There are also limits on capital expenditures and the payment
of cash dividends.
Cash and cash equivalents totaled $5.4 million at March 30, 1996, as compared to
$2.6 million at December 31, 1995. Cash used by operating activities amounted to
$3.7 million in the first quarter of 1996, as compared to cash provided by
operating activities of $2.1 million in the comparable period of 1995.
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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
A Special Meeting of Shareholders of NAI Technologies, Inc. was held in
Longmont, Colorado, on February 1, 1996. On the record date for the Special
Meeting, December 15, 1996, there were 7,459,437 shares of Common Stock issued
and outstanding and entitled to vote. A quorum of 6,648,551 shares, representing
approximately 89.1% of the total votes, were represented by proxy or in person
and entitled to vote at the Special Meeting.
Three proposals, subject to shareholder approval, were approved at the Special
Meeting by a vote of the shareholders. The first proposal was to approve an
investment transaction and the issuance by the Company of certain debt
securities and warrants convertible or exercisable into or for approximately
8,000,000 shares of the Company's Common Stock to investors in a proposed
private placement which will result in the potential issuance of more than 20%
of the Company's Common Stock and may result in a change of control of the
Company. The proposal was carried with 3,972,295 favorable votes which
represented 89.3% of the Common Stock present at the Special Meeting and voting.
471,621 shares were voted against the proposal and 42,828 abstained.
The second proposal was to increase the number of common shares authorized, and
to amend the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 10,000,000 to 25,000,000. The proposal
was carried with 6,110,601 favorable votes, which represented 89.3% of the
outstanding Common Stock. 495,122 shares were voted against the proposal and
42,828 abstained.
The third proposal was to ratify the appointment of KPMG Peat Marwick, Certified
Public Accountants, as independent auditors to the Company for the year 1995.
The proposal was carried with 6,573,075 favorable votes, which represented 88.1%
of the outstanding Common Stock. 46,526 shares were voted against the proposal
and 28,619 abstained.
Item 5. Other Events
On May 2, 1996, Active Investors II, Ltd. purchased an additional 100 Units
consisting of $100,000 principal amount of the Company's 12% Convertible
Subordinated Promissory Notes due 2001 and a detachable warrant to purchase
25,000 shares of the Company's Common Stock at a purchase price of $100,000,
bringing its total investment in such securities to $1,000,000 (1,000 Units).
C. Shelton James, a director of the Company, is the President and a director of
Active Investors II, Ltd. Active Investors II, Ltd. and certain affiliated
limited partnerships currently own approximately 5.57% of the Company's Common
Stock. In connection with its investment in the Units, Active Investors II, Ltd.
was given the right to appoint one additional director of the Company and has
appointed Edward L. Hennessy to serve in such capacity.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 - Financial Data Schedule (Edgar Filing only)
b) Reports on Form 8-K
None.
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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 3, 1996 By:\s\Richard A. Schneider
--------------------- ---------------------------
Richard A. Schneider
Executive Vice President
(On behalf of the registrant and as
Principal Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<PERIOD-TYPE> 3-MOS
<CASH> 5,425
<SECURITIES> 0
<RECEIVABLES> 12,137
<ALLOWANCES> 0
<INVENTORY> 13,217
<CURRENT-ASSETS> 31,934
<PP&E> 13,172
<DEPRECIATION> (7,939)
<TOTAL-ASSETS> 50,436
<CURRENT-LIABILITIES> 16,239
<BONDS> 0
<COMMON> 746
0
0
<OTHER-SE> 10,002
<TOTAL-LIABILITY-AND-EQUITY> 50,436
<SALES> 16,503
<TOTAL-REVENUES> 16,503
<CGS> 13,238
<TOTAL-COSTS> 16,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 565
<INCOME-PRETAX> (315)
<INCOME-TAX> 135
<INCOME-CONTINUING> (450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (450)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
