<PAGE>
<PAGE>
(CONFORMED COPY)
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 June 29, 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 August 5, 1996, 8,459,437 shares of NAI Technologies, Inc.'s $.10 par
value Common Stock were outstanding.
Page 1 of 17 Pages
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Page 2
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
June 29, 1996 and December 31, 1995
Consolidated Statements of Operations - 4
Three months ended June 29, 1996 and
July 1, 1995
Consolidated Statements of Operations - 5
Six months ended June 29, 1996 and
July 1, 1995
Consolidated Statements of Cash Flows - 6
Six months ended June 29, 1996 and
July 1, 1995
Other Financial Information 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibits 16-17
</TABLE>
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Page 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, DEC. 31,
1996 1995
(AUDITED)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
- ------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,095 $ 2,605
Accounts receivable, net 14,637 13,735
Inventories, net 14,208 11,995
Deferred tax asset 384 384
Other current assets 446 813
- ---------------------------------------------------------------------------------------
Total current assets 30,770 29,532
- ---------------------------------------------------------------------------------------
Property, plant and equipment, net 4,945 5,351
Excess of cost over fair value of assets
acquired, net 10,022 10,339
Long-term notes receivable -- 1,190
Other assets 3,154 1,600
- ---------------------------------------------------------------------------------------
Total assets $ 48,891 $ 48,012
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ 537 $ --
Current installments of long-term debt 2,620 2,177
Accounts payable 8,783 9,797
Accrued payroll and commissions 532 768
Other accrued expenses 3,534 6,376
Income taxes payable 509 370
- ---------------------------------------------------------------------------------------
Total current liabilities 16,515 19,488
- ---------------------------------------------------------------------------------------
Long-term debt 15,951 15,573
Other accrued expenses 2,526 2,481
Deferred income taxes 384 384
- ---------------------------------------------------------------------------------------
Total liabilities $ 35,376 $ 37,926
- ---------------------------------------------------------------------------------------
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: 8,459,437 846 746
in 1996 and 7,459,437 in 1995 19,122 16,162
Foreign currency translation adjustment 49 43
Retained earnings (deficit) (6,502) (6,865)
- ---------------------------------------------------------------------------------------
Total shareholders' equity 13,515 10,086
- ---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $48,891 $ 48,012
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
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Page 4
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 29, JULY 1,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 17,354 $ 14,084
- --------------------------------------------------------------------------------
Cost of sales 13,804 15,911
- --------------------------------------------------------------------------------
Gross margin 3,550 (1,827)
- --------------------------------------------------------------------------------
Selling expense 1,002 1,242
General and administrative expense 1,140 1,408
Research and development 505 485
Other (636) 196
- --------------------------------------------------------------------------------
Total expenses 2,011 3,331
- --------------------------------------------------------------------------------
Operating income (loss) 1,539 (5,158)
- --------------------------------------------------------------------------------
Non-operating income (expense)
Other 15 --
Deferred debt expense (170) (300)
Interest income 46 34
Interest expense (609) (357)
- --------------------------------------------------------------------------------
(718) (623)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 821 (5,781)
Provision for income taxes 6 24
- --------------------------------------------------------------------------------
Net income (loss) $ 815 $ (5,805)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.10 $ (0.78)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average shares outstanding 8,513 7,418
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
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Page 5
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 29, JULY 1,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 33,857 $ 26,771
- --------------------------------------------------------------------------------
Cost of sales 27,042 26,080
- --------------------------------------------------------------------------------
Gross margin 6,815 691
- --------------------------------------------------------------------------------
Selling expense 2,116 2,506
General and administrative expense 2,510 2,759
Research and development 872 1,026
Other (472) 226
- --------------------------------------------------------------------------------
Total expenses 5,026 6,517
- --------------------------------------------------------------------------------
Operating income (loss) 1,789 (5,826)
- --------------------------------------------------------------------------------
Non-operating income (expense)
Other 15 --
Deferred debt expense (225) (300)
Interest income 101 88
Interest expense (1,174) (751)
- --------------------------------------------------------------------------------
(1,283) (963)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 506 (6,789)
Provision for income taxes 141 110
- --------------------------------------------------------------------------------
Net income (loss) $ 365 $ (6,899)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.05 $ (0.94)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average shares outstanding 7,988 7,304
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
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Page 6
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 29, JULY 1,
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 363 $(6,899)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 1,290 1,377
Gain on disposal of property, plant & equipment
and other (790) (4)
Provision for inventory obsolescence 207 2,113
Loss on sale of notes receivable 89 --
Change in assets and liabilities, excluding effects from acquisitions and
foreign currency adjustments:
Accounts receivable (1,296) (188)
Inventories (2,492) 805
Accounts payable and other accrued expenses (4,117) (697)
Income taxes 139 4,184
Other, net (827) 73
- ----------------------------------------------------------------------------------------------------
Net cash flow (used in) provided by
operating activities (7,434) 764
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contingent payment on purchase of
KMS Advanced Products -- (26)
Purchase of property, plant and equipment (325) (378)
Proceeds from sale of property, plant and
equipment & other 1,363 417
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,038 13
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of notes payable 590 6
Issuance of 12% convertible bonds 5,842 --
Payments of notes payable (53) (133)
Payments of long-term debt (2,601) (461)
Receipts of notes receivable 1,101 --
Payments for debt restructuring -- (340)
Proceeds from exercise of stock options
and stock purchase plan -- 25
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,879 (903)
- ----------------------------------------------------------------------------------------------------
Effect of foreign currency exchange rates on cash 7 40
- ----------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,510) (86)
Cash and cash equivalents at beginning of year 2,605 1,658
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,095 $ 1,572
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for (refunded):
Interest $ 1,057 $ 753
Income taxes $ 3 $(3,949)
Non-cash investing and financing activities
Notes receivable from sale of property, plant &
equipment $ -- $ 1,190
Conversion of 12% Notes into common stock $ 2,000 $ --
Common stock issued in debt restructuring $ -- $ 500
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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Page 7
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 six months ended June 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
June 29, Dec. 31,
1996 1995
(Audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands of dollars)
Raw materials and components $ 10,105 $ 11,695
Work-in-process 5,983 4,121
Finished goods 1,050 477
Allowance for obsolescence (2,714) (3,536)
Unliquidated progress payments (216) (762)
- --------------------------------------------------------------------------------
Inventories, net $ 14,208 $ 11,995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
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Page 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter 1996 Compared with Second 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 second quarter of 1996 were $17.4
million, a 23% increase when compared with $14.1 million for the same period in
1995.
The following chart provides the sales breakdown by segment and subsidiary for
the second quarter:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONIC SYSTEMS SEGMENT
Codar Technology, Inc. $ 8,487 $ 7,475 14%
NAI Systems Division 3,451 2,470 40%
Lynwood Scientific Dev. Ltd. 3,438 2,570 34%
Inter-company (151) (221)
-----------------------------------
Total Electronic Systems Segment 15,225 12,294 24%
TELECOMMUNICATIONS SEGMENT
Wilcom, Inc. 2,129 1,790 19%
-----------------------------------
Total Telecommunications Segment 2,129 1,790 19%
-----------------------------------
TOTAL $ 17,354 $ 14,084 23%
-----------------------------------
-----------------------------------
</TABLE>
Sales in the Electronic Systems segment (net of inter-company eliminations)
increased 24% to $15.2 million from $12.3 million for the same period in 1995.
Each of the NAI subsidiaries recorded sales increases in the second quarter of
1996 as compared to 1995. The increase recorded by Codar is attributable to
increased shipping volumes. 1995 revenues were adversely impacted by production
problems on several contracts. The increases at the NAI 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 19% to $2.1 million as
compared to $1.8 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.
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Page 9
The gross margin percentage for the second quarter of 1996 was 20.5% as compared
with (13.0%)in the comparable period in 1995. The following chart provides the
gross margin percentage by subsidiary.
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Codar Technology, Inc. 12.4% (24.7)%
NAI Systems Division 18.8% (17.4)%
Lynwood Scientific Dev. Ltd. 31.9% 35.0%
Wilcom, Inc. 35.3% 22.5%
</TABLE>
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 third quarter of 1996. The Company expects
the Codar gross margin percentage to continue to improve during the year.
The Systems Division's second quarter 1995 gross margin was adversely impacted
by the recording of a $900,000 provision for inventory obsolescence.
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 second quarter of 1996 was $1.0 million as compared with
$1.2 million for the same period in 1995. The 19% decrease despite an increase
in sales of 23% is attributable to the Company's desire to reduce its operating
expenses.
General and administrative expenses for the second quarter of 1996 were $1.1
million as compared to $1.4 million for the same period in 1995. A decline in
the corporate office expense as well as cost cutting moves taken in the fourth
quarter of 1995 account for the decline.
Company-sponsored research and development expenditures for the second quarter
of 1996 were $0.5 million, unchanged from the same period in 1995. The Company
expects that the level of the second quarter 1996 IR&D expenditures will be
relatively constant for the remainder of 1996.
For the second quarter of 1996, the Company had operating income of $1.5 million
as compared with an operating loss of $5.2 million for the same period in 1995.
The second quarter results were favorably impacted by the recognition of a gain
of approximately $750,000 on the previously announced sale of the Systems
Integration Division to Tracor Aerospace Inc. in June 1996.
Interest expense, net of interest income, was $0.6 million for the second
quarter of 1996 as compared with $0.3 million for the same period in 1995.
The Company accrued a small income tax expense. 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, Lynwood is required to pay taxes in the U.K. The Company is
unable to recognize the full tax benefit associated with its U.S. net operating
loss carry-forward due to uncertainties as to whether or not a future benefit
will be realized. Once the Company returns to sustained profitability, the
benefits of such a tax loss carry-forward will be recognized.
For the second quarter of 1996 the Company had a net profit of $0.8 million as
compared with a net loss of $5.8 million in the second quarter of 1995. Earnings
per share were $0.10 as compared with a loss of $0.78 per share for the same
period in 1995, based on a weighted average of 8.5 million and 7.4 million
shares outstanding, respectively.
<PAGE>
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Page 10
First Half 1996 Compared with First Half 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 half of 1996 were $33.9
million, a 26% increase when compared with $26.8 million for the same period in
1995.
The following chart provides the sales breakdown by segment and subsidiary for
the first six months:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONIC SYSTEMS SEGMENT
Codar Technology, Inc. $ 16,678 $ 13,060 28%
NAI Systems Division 6,530 5,213 25%
Lynwood Scientific Dev. Ltd. 6,658 5,432 23%
Inter-company (260) (454)
------------------------------------
Total Electronic Systems Segment 29,606 23,251 27%
TELECOMMUNICATIONS SEGMENT
Wilcom, Inc. 4,251 3,520 21%
------------------------------------
Total Telecommunications Segment 4,251 3,520 21%
------------------------------------
TOTAL $ 33,857 $ 26,771 26%
------------------------------------
------------------------------------
</TABLE>
Sales in the Electronic Systems segment (net of inter-company eliminations)
increased 27% to $29.6 million from $23.3 million for the same period in 1995.
Each of the NAI subsidiaries recorded sales increases in the first half of 1996
as compared to 1995. The largest increase was recorded by Codar and is
attributable to increased shipping volumes. The 1995 revenues were adversely
impacted by production problems on certain contracts. The increases at the NAI
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 21% to $4.3 million as
compared to $3.5 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 half of 1996 was 20.1% as compared
with 2.6% for the same period in 1995. The following chart provides the gross
margin percentage by subsidiary.
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Codar Technology, Inc. 10.7% (19.4)%
NAI Systems Division 19.7% 13.5%
Lynwood Scientific Dev. Ltd. 32.9% 31.8%
Wilcom, Inc. 33.5% 22.6%
</TABLE>
<PAGE>
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Page 11
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 was still adversely impacted by several large contracts
for which the gross margins are -0-. These contracts are expected to be
substantially completed during the third quarter of 1996. The Company expects
the Codar gross margin percentage to continue to improve during the year.
The Systems Division's first half 1995 gross margin was adversely impacted by
the recording of a $900,000 provision for inventory obsolescence.
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 half of 1996 was $2.1 million as compared with
$2.5 million for the same period in 1995. The 16% decrease despite an increase
in sales of 26% is attributable to the Company's desire to reduce its operating
expenses.
General and administrative expenses for the first half of 1996 were
$2.5 million as compared with $2.8 million for the same period in 1995. A
decline in the corporate office expense as well as cost cutting moves taken in
the fourth quarter of 1995 account for the decline.
Company-sponsored research and development expenditures for the first half of
1996 were $0.9 million as compared with $1.0 million for the same period in
1995. The Company expects that the level of the first half 1996 IR&D
expenditures will be relatively constant for the remainder of 1996.
For the first half of 1996, the Company had operating income of $1.8 million as
compared with an operating loss of $5.8 million for the same period in 1995. The
first half results were favorably impacted by the recognition of a gain of
approximately $750,000 on the previously announced sale of the Systems
Integration Division to Tracor Aerospace Inc. in June 1996.
Interest expense, net of interest income, was $1.1 million for the first half of
1996 as compared with $0.7 million for the same period in 1995.
The Company accrued an income tax expense of $0.1 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, Lynwood is required to pay taxes in the U.K. The
Company is unable to recognize the tax benefit associated with its U.S. net
operating loss carry-forward due to uncertainties as to whether or not a future
benefit will be realized. Once the Company returns to sustained profitability,
the benefits of such a tax loss carry-forward will be recognized.
For the first half of 1996 the Company had a net profit of $0.4 million as
compared with a net loss of $6.9 million in the first half of 1995. Earnings per
share were $0.05 as compared with a loss of $0.94 for the same period in 1995,
based on a weighted average of 8.0 million and 7.3 million shares outstanding,
respectively.
Liquidity and Capital Resources
On February 15, 1996 the Company entered into an amendment to its credit
agreement with its bank lenders which amended and extended the payment
provisions 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, 1996 and
payments of $750,000 beginning on March 31, 1997 and paid through December 31,
1998. The remaining principal balance is due on January 15, 1999. Interest
<PAGE>
<PAGE>
Page 12
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 ratio and
quick ratio. There are also limits on capital expenditures and the payment of
cash dividends. The Company believes that it can comply with such loan covenants
during the term of the credit agreement.
On February 15, 1996, February 23, 1996, February 29, 1996, and May 2, 1996, the
Company issued an aggregate of $8,342,000 of 12% Convertible Subordinated
Promissory Notes due January 15, 2001 (the "Notes") and warrants to purchase an
aggregate of 2,085,500 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 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 on 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 2,034,200 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 $7,534,081 ($2,500,000 was received prior to December 31, 1995) from the sale
of the Notes and the Warrants upon completion of the offering.
Approximately $4.1 million was used to reduce the Company's accounts payable to
its vendors. The remainder of the funds received will be used to meet operating
and working capital needs. As a result of the sale of the Notes and the debt
restructuring, the Company will expend approximately $4,073,000 in principal and
interest payments in 1996, $4,933,000 in 1997 and $4,632,000 in 1998. On January
15, 1999 the Company is required to make a balloon payment of $7,175,000.
The Company intends to further reduce its operating expenses and sell all
non-essential assets. The Company intends to pay interest on the Notes, interest
and principal under the credit agreement and operating expenses for the next
three years with cash flow from operations together with the excess cash
received from the sale of the Notes after the payment of vendors and proceeds
from assets sales, if any. The Company believes that it will be necessary to
refinance its existing bank debt prior to maturity on January 15, 1999 when the
balloon payment of $7,175,000 is due. At that time, the Company intends to
explore all available options including the issuance of debt or equity
securities of the Company and the sale of one or more of the Company's
subsidiaries.
On May 9, 1996, the Company entered into an agreement with Charles S. Holmes, a
member of the Company's Board of Directors, that in consideration of his
converting the 12% Convertible Subordinated Promissory Note due 2001 of the
Company in the aggregate unpaid principal amount of $2,000,000 held by him into
1,000,000 shares of Common Stock as provided in Section 6 of the Note, the
Company would immediately grant him warrants to purchase 300,000 shares of
Common Stock at any time and from time to time on or before February 15, 2002 at
an exercise price of $3.00 per share, subject to adjustment in certain events.
<PAGE>
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Page 13
Cash and cash equivalents totaled $1.1 million at June 29, 1996, as compared to
$2.6 million at December 31, 1995. Cash used by operating activities amounted to
$7.4 million in the first six months of 1996, as compared to cash provided by
operating activities of $0.8 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.
<PAGE>
<PAGE>
Page 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<C> <S>
a) Exhibits
11 - Statements re Computation of Per Share Earnings
27 - Financial Data Schedule (Edgar Filing Only)
</TABLE>
b) Reports on Form 8-K
Registrant filed a current report on Form 8-K dated May 22, 1996
with respect to Registrant's agreement with Charles S. Holmes, a member of the
Company's Board of Directors, that in consideration of his converting the 12%
Convertible Subordinated Promissory Note due 2001 in the aggregate principal
amount of $2,000,000 into 1,000,000 shares of Common Stock of the Company, the
Company would grant him warrants to purchase 300,000 shares of Common Stock at
$3.00 per share.
<PAGE>
<PAGE>
Page 15
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 August 6, 1996 By:\s\Richard A. Schneider
------------------------- --------------------------
Richard A. Schneider
Executive Vice President
(On behalf of the registrant and as
Principal Financial Officer)
<PAGE>
<PAGE>
Page 16
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Three Months Ended
June 29, July 1,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) $ 815 ($5,805)
Average shares of common stock outstanding
during the period 8,031 7,418
Incremental shares from assumed exercise of stock
options, stock warrants & employee stock
purchase plan (primary)* 482 0
Total shares used to calculate PEPS* 8,513 7,418
------- -------
Primary earnings per share $ 0.10 ($ 0.78)
======= =======
Net Income (loss) $ 815 ($5,805)
Interest on Convertible Debt (Net of Taxes) 217 0
Amortization of OID 35 0
Amortization of Deferred Debt Expense 170 0
------- -------
Adjusted Net Income $ 1,237 ($5,805)
======= =======
Average shares of common stock outstanding
during the period 8,031 7,418
Incremental shares from assumed exercise of stock
options, stock warrants & employee stock
purchase plan (primary) 870 5
Dilution from Convertible Debt 3,171 0
Total shares used to calculate FDEPS* 12,072 7,418
------- -------
Fully Diluted earnings per share $ 0.10 ($ 0.78)
======= =======
</TABLE>
*Per APB 15, when a net loss is reported, exercise or conversion is not to be
assumed.
<PAGE>
<PAGE>
Page 17
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Six Months Ended
June 29, July 1,
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) $ 365 ($6,899)
Average shares of common stock outstanding
during the period 7,747 7,304
Incremental shares from assumed exercise of stock
options, stock warrants & employee stock
purchase plan (primary)* 241 5
Total shares used to calculate PEPS 7,988 7,304
------- -------
Primary earnings per share $ 0.05 ($ 0.94)
======= =======
Net Income (loss) $ 365 ($6,899)
Interest on Convertible Debt (Net of Taxes) 363 0
Amortization of OID (Net of Taxes) 61 0
Amortization of Deferred Debt Expense (Net of Taxes) 225 0
------- -------
Adjusted Net Income $ 1,014 ($6,899)
======= =======
Average shares of common stock outstanding
during the period 7,747 7,304
Incremental shares from assumed exercise of stock
options, stock warrants & employee stock
purchase plan (primary) 436 5
Dilution from Convertible Debt 3,171 0
Total shares used to calculate FDEPS* 11,354 7,304
------- -------
Fully Diluted earnings per share $ 0.09 ($ 0.94)
======= =======
</TABLE>
*Per APB 15, when a net loss is reported, exercise or conversion is not to be
assumed.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,095
<SECURITIES> 0
<RECEIVABLES> 14,637
<ALLOWANCES> 0
<INVENTORY> 14,208
<CURRENT-ASSETS> 30,770
<PP&E> 13,072
<DEPRECIATION> (8,127)
<TOTAL-ASSETS> 48,891
<CURRENT-LIABILITIES> 16,515
<BONDS> 0
<COMMON> 846
0
0
<OTHER-SE> 12,669
<TOTAL-LIABILITY-AND-EQUITY> 48,891
<SALES> 33,857
<TOTAL-REVENUES> 33,857
<CGS> 27,042
<TOTAL-COSTS> 32,068
<OTHER-EXPENSES> (15)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 733
<INCOME-PRETAX> 506
<INCOME-TAX> 141
<INCOME-CONTINUING> 365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
