<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 September 27, 1997
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)
282 New York Avenue, Huntington, New York 11743
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 271-5685
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 November 1, 1997, 9,155,427 shares of NAI Technologies, Inc.'s $.10 par
value Common Stock were outstanding.
Page 1 of 15 Pages
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NAI TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Facing Sheet 1
Index 2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3
September 27, 1997 and December 31, 1996
Consolidated Statements of Operations - 4
Three months ended September 27, 1997 and
September 28, 1996
Consolidated Statements of Operations - 5
Nine months ended September 27, 1997 and
September 28, 1996
Consolidated Statements of Cash Flows - 6
Nine months ended September 27, 1997 and
September 28, 1996
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
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 27, DEC. 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
(AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 963 $ 2,727
Accounts receivable, net 10,017 12,693
Inventories, net 7,269 10,270
Deferred tax asset 165 173
Other current assets 608 597
- ----------------------------------------------------------------------------------------------
Total current assets 19,022 26,460
- ----------------------------------------------------------------------------------------------
Property, plant and equipment, net 2,968 3,523
Excess of cost over fair value of assets
acquired, net 9,233 9,707
Other assets 1,412 1,681
- ---------------------------------------------------------------------------------------
Total assets $32,635 $41,371
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 82 $ 158
Notes payable 68 -
Accounts payable 4,505 6,907
Accrued payroll and commissions 148 680
Other accrued expenses 2,406 3,894
Income taxes payable 1,111 580
- ----------------------------------------------------------------------------------------------
Total current liabilities 8,320 12,219
- ----------------------------------------------------------------------------------------------
Long-term debt 9,990 12,224
Other accrued expenses 796 912
Deferred income taxes 36 36
- ----------------------------------------------------------------------------------------------
Total liabilities $19,142 $25,391
- ----------------------------------------------------------------------------------------------
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: 9,155,427
in 1997 and 8,841,937 in 1996 916 902
Capital in excess of par value 19,456 19,217
Foreign currency translation adjustment 102 313
Retained earnings (deficit) (6,981) (4,452)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 13,493 15,980
- ----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $32,635 $41,371
==============================================================================================
</TABLE>
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NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
SEPT. 27, SEPT. 28,
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $12,553 $17,271
- ---------------------------------------------------------------------------------------
Cost of sales 12,562 13,470
- ---------------------------------------------------------------------------------------
Gross margin (9) 3,801
- ---------------------------------------------------------------------------------------
Selling expense 907 894
General and administrative expenses 1,401 1,423
Research and development 334 343
Other 189 (609)
- ---------------------------------------------------------------------------------------
Total expenses 2,831 2,051
- ---------------------------------------------------------------------------------------
Operating earnings (loss) (2,840) 1,750
- ---------------------------------------------------------------------------------------
Non-operating income (expense)
Deferred debt expense (80) (120)
Interest income 15 13
Interest expense (371) (548)
- ----------------------------------------------------------------------------------------
(436) (655)
- ----------------------------------------------------------------------------------------
Earnings (loss) before income taxes (3,276) 1,095
Provision for income taxes 133 131
- ----------------------------------------------------------------------------------------
Net income (loss) $(3,409) $ 964
========================================================================================
Earnings (loss) per common share $ (0.37) $ 0.11
========================================================================================
Average shares outstanding 9,133 9,000
========================================================================================
</TABLE>
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NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------
SEPT. 27, SEPT. 28,
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $39,727 $51,128
- ----------------------------------------------------------------------------------------
Cost of sales 32,332 40,512
- ----------------------------------------------------------------------------------------
Gross margin 7,395 10,616
- ----------------------------------------------------------------------------------------
Selling expense 2,905 3,010
General and administrative expenses 3,560 3,933
Research and development 1,126 1,215
Other 467 (1,081)
- ----------------------------------------------------------------------------------------
Total expenses 8,058 7,077
- ----------------------------------------------------------------------------------------
Operating earnings (loss) (663) 3,539
- ----------------------------------------------------------------------------------------
Non-operating income (expense)
Other - 15
Deferred debt expense (260) (345)
Interest income 47 114
Interest expense (1,149) (1,722)
- ----------------------------------------------------------------------------------------
(1,362) (1,938)
- ----------------------------------------------------------------------------------------
Earnings (loss) before income taxes (2,025) 1,601
Provision for income taxes 504 272
- -----------------------------------------------------------------------------------------------------
Net earnings (loss) $(2,529) $ 1,329
==============================================================================================
Earnings (loss) per common share $(0.28) $ 0.16
==============================================================================================
Average shares outstanding 9,079 8,326
==============================================================================================
</TABLE>
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NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPT. 27, SEPT. 28,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(2,529) $ 1,329
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 1,681 1,918
Net (gain) on sale of property, plant and
equipment and other (6) (1,543)
Provision for inventory obsolescence 2,585 127
Loss on sale of notes receivable -- 89
Change in assets and liabilities, excluding effects
from acquisitions and foreign currency adjustments:
Accounts receivable 2,676 1,454
Inventories (net of reserve provisions) 416 662
Accounts payable and other accrued expenses (4,538) (7,576)
Income taxes 539 270
Other, net (25) (1,020)
- ----------------------------------------------------------------------------------------
Net cash flow provided by (used in) operating
activities 799 (4,290)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (315) (477)
Proceeds from sale of property, plant and
equipment and other 22 2,266
- ---------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (293) 1,789
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of notes payable 1,189 590
Issuance of 12% convertible bonds -- 5,842
Payments of notes payable (1,121) (590)
Payments of long-term debt (2,323) (3,683)
Receipts on notes receivable -- 1,101
Proceeds from exercise of stock options and stock
purchase plan, net 180 --
- ---------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (2,075) 3,080
- ---------------------------------------------------------------------------------------
Effect of foreign currency exchange rates on cash (195) 33
- ---------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,764) 612
Cash and cash equivalents at beginning of year 2,727 2,605
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 963 $ 3,217
=======================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $1,101 $ 1,696
Income taxes $14 $ 6
Non-cash investing and financing activities
Net conversions of 12% notes into common stock $73 $ 1,897
===================================================================================
</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 (the "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 nine months ended September 27,
1997 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 Annual Report on Form 10-K for the year ended December 31, 1996.
INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Sept. 27, Dec. 31,
1997 1996
(Audited)
- ----------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Raw materials and components $8,082 $8,567
Work-in-process 2,669 3,010
Finished goods 1,446 1,204
Allowance for obsolescence (4,798) (2,403)
Unliquidated progress payments (130) (108)
- ----------------------------------------------------------------------------------------
Inventories, net $7,269 $10,270
=======================================================================================
</TABLE>
-7-
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Page 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter 1997 Compared with Third Quarter 1996
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 third quarter of 1997 were $12.6
million, a 27% decrease when compared with $17.3 million for the same period in
1996.
The following chart provides the sales breakdown by segment and subsidiary for
the third quarter:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 % Change
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONIC SYSTEMS SEGMENT
Codar Technology, Inc. $2,743 $8,420 (67%)
NAI Systems Division 4,595 3,735 23%
Lynwood Scientific Dev. Ltd. 4,525 3,620 25%
Inter-company (32) (26) --
--------------------------------
Total Electronic Systems Segment 11,831 15,749 (25%)
TELECOMMUNICATIONS SEGMENT
Wilcom, Inc. 722 1,522 (53%)
----------------------------------
Total Telecommunications Segment 722 1,522 (53%)
----------------------------------
TOTAL $12,553 $17,271 (27%)
==================================
</TABLE>
Sales in the Electronic Systems segment (net of inter-company eliminations)
decreased 25% to $11.8 million from $15.7 million for the same period in 1996.
Sales increases of 25% at Lynwood Scientific Development Ltd. and 23% at NAI
Systems Division were more than offset by a 67% sales decline at Codar. The
sales decline at Codar is attributable to several factors, most notably a
decline in Codar's rate of booking new orders for the CHS II product line and
rugged work station products. Codar believes the bookings decline to be
temporary, however, it must be noted that until the booking rate increases,
Codar will continue to report less than optimum operating results. During the
third quarter the U.S. Army approved Codar's Rugged 16 Inch and 20 Inch Flat
Panel display products and the rugged portable integrated Sun Workstation on the
CHS II Contract. The Company has reduced its ongoing operating expenses at Codar
to mitigate the potential adverse impact of continuing lower sales. Codar is in
the process of rebuilding its internal sales and marketing resources. The sales
increases at Systems Division and Lynwood from the same period in 1996 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 30% of 1997 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.
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Page 9
Sales in the Telecommunications segment decreased 53% to $0.7 million as
compared to $1.5 million for the same period in 1996. The decrease in sales is
attributable to the rapid decline in sales of their MFT analog line treatment
products as well as the slower than expected ramp up in the sales of the new
Turbo Amp products. The Company is exploring all available methods to increase
revenues and has recently added additional sales personnel in the
Telecommunications segment.
The gross margin percentage for the third quarter of 1997 was 0% as compared
with 22% in the comparable period in 1996. The following chart provides the
gross margin percentage by subsidiary.
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Codar Technology, Inc. (75.9%) 13.5%
NAI Systems Division 18.4% 19.7%
Lynwood Scientific Dev. Ltd. 29.8% 33.9%
Wilcom, Inc. (16.9%) 46.2%
</TABLE>
Codar's margin was adversely impacted by a $3.0 million charge substantially
related to an inventory write-down which resulted from lower than expected sales
along with the final withdrawal from electronic printer products and the
addition of certain more advance Codar products on the CHS II program.
Wilcom's margins were adversely impacted by lower shipping volume.
The lower gross margin at Lynwood is attributable to an unfavorable mix of high
and low margin sales during the quarter.
Selling expense for the third quarter of 1997 and 1996 were relatively unchanged
at $0.9 million for both periods.
General and administrative expenses for the third quarter of 1997 were $1.4
million essentially unchanged from the comparable 1996 figure.
Company-sponsored research and development expenditures for the third quarter of
1997 and 1996 were relatively unchanged at $0.3 million for both periods. The
Company expects that internal research and development expenditures will remain
relatively constant for the remainder of 1997.
For the third quarter of 1997, the Company had an operating loss of $2.8 million
as compared with operating income of $1.8 million for the same period in 1996.
The operating loss was attributable to lower sales and a $3.0 million charge
substantially related to an inventory write-down at the Company's Codar
subsidiary. The 1996 operating income included a gain of $0.75 million from the
sale of the Systems Integration Division.
Interest expense and amortization of deferred debt costs, net of interest
income, was $0.4 million for the third quarter of 1997 as compared with $0.7
million for the same period in 1996.
The Company recorded income tax expense of $0.1 million in the third quarter of
1997, which equates to an effective tax rate of 31%. 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 entire future 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.
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Page 10
For the third quarter of 1997 the Company recorded a net loss of $3.4 million as
compared with a net profit of $1.0 million in the third quarter of 1996.
Earnings (loss) per share were ($0.37) as compared with $0.11 per share for the
same period in 1996, based on a weighted average of 9.1 million and 9.0 million
shares outstanding, respectively.
First Nine Months of 1997 Compared with First Nine Months of 1996
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 nine months of 1997 were
$39.7 million, a 22% decrease when compared with $51.1 million for the same
period in 1996.
The following chart provides the sales breakdown by segment and subsidiary for
the first nine months:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 % Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONIC SYSTEMS SEGMENT
Codar Technology, Inc. $10,977 $25,098 (56%)
NAI Systems Division 12,967 10,265 26%
Lynwood Scientific Dev. Ltd. 13,278 10,278 29%
Inter-company (564) (286) --
-----------------------------------
Total Electronic Systems Segment 36,658 45,355 (19%)
TELECOMMUNICATIONS SEGMENT
Wilcom, Inc. 3,069 5,773 (47%)
-----------------------------------
Total Telecommunications Segment 3,069 5,773 (47%)
-----------------------------------
TOTAL $39,727 $51,128 (22%)
===================================
</TABLE>
Sales in the Electronic Systems segment (net of inter-company eliminations)
decreased 19% to $36.7 million from $45.4 million for the same period in 1996.
Sales increases of 29% at Lynwood Scientific Development Ltd. and 26% at NAI
Systems Division were more than offset by a 56% sales decline at Codar. The
sales decline at Codar is attributable to several factors, most notably a
decline in Codar's rate of booking new orders for the CHS II product line and
rugged work station products. Codar believes the bookings decline to be
temporary, however, it must be noted that until the bookings rate increases,
Codar will continue to report less than optimum operating results. The Company
recently reduced its ongoing operating expenses at Codar to mitigate the
potential adverse impact of continuing lower sales. Codar is in the process of
rebuilding its internal sales and marketing resources. Codar's 1996 sales levels
were favorably impacted by delays in shipments from prior years. The sales
increases at Systems Division and Lynwood from the same period in 1996 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 30% of 1997 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
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Page 11
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 decreased 47% to $3.1 million as
compared to $5.8 million for the same period in 1996. The decrease in sales is
attributable to the rapid decline in sales of their MFT analog line treatment
products as well as the slower than expected ramp up in the sales of the new
Turbo Amp products. The Company is exploring all available methods to increase
its revenues and has recently added additional sales personnel in the
Telecommunications segment.
The gross margin percentage for the first nine months of 1997 was 18.6% as
compared with 20.8% for the same period in 1996. The following chart provides
the gross margin percentage by subsidiary.
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Codar Technology, Inc. (8.6%) 11.6%
NAI Systems Division 24.8% 19.7%
Lynwood Scientific Dev. Ltd. 33.3% 33.3%
Wilcom, Inc. 23.0% 36.8%
</TABLE>
Codar's margin was adversely impacted by a $3.0 million charge substantially
related to an inventory write-down which was necessitated by lower than expected
sales at Codar and the final withdrawal from electronic printer products and the
replacement of some of Codar's products on the CHS II program with new more
advanced Codar products.
Lower shipping volume adversely impacted Wilcom's gross margin.
The higher gross margin percentage at NAI Systems Division is attributable to
increased shipping volumes and a more favorable mix of development, production
and mature product sales.
Selling expense for the first nine months of 1997 was $2.9 million as compared
with $3.0 million for the same period in 1996.
General and administrative expenses for the first nine months of 1996 were $3.6
million as compared with $3.9 million for the same period in 1996. The decline
is attributable to the Company's continuing goal of reducing its operating
expenses.
Company-sponsored research and development expenditures for the first nine
months of 1997 were $1.1 million as compared with $1.2 million for the same
period in 1996. The Company expects that the rate of IR&D expenditures for the
first nine months of 1997 will remain relatively constant for the remainder of
the year.
For the first nine months of 1997, the Company had an operating loss of $0.7
million as compared with operating earnings of $3.5 million for the same period
in 1996. The operating loss was attributable to lower sales and a $3.0 million
charge substantially related to an inventory write-down at the Company's Codar
subsidiary. The 1996 operating income included a gain of $1.5 million from the
sale of the Systems Integration Division.
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Page 12
Interest expense and amortization of deferred debt costs, net of interest
income, was $1.4 million for the first nine months of 1997 as compared with $1.9
million for the same period in 1996.
The Company recorded income tax expense of $0.5 million for the first nine
months of 1997, which equates to an effective tax rate of 31%. 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 entire future 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.
For the first nine months of 1997 the Company recorded a net loss of $2.5
million as compared with a net profit of $1.3 million in the comparable period
of 1996. Earnings (loss) per share were ($0.28) as compared with earnings of
$0.16 for the same period in 1996, based on a weighted average of 9.1 million
and 8.3 million shares outstanding, respectively.
Liquidity and Capital Resources
Cash and cash equivalents totaled $1.0 million at September 27, as compared to
$2.7 million at December 31, 1996. Cash provided by operating activities
amounted to $0.8 million for the first nine months of 1997, as compared to cash
used by operating activities of $4.3 million in the comparable period of 1996.
The 1996 period saw a large outflow of funds to the Company's vendors which had
been delayed pending completion of the Company's sale of its 12% Convertible
Notes.
During the first nine months of 1997, the Company reduced outstanding bank debt
by $2.2 million bringing the total amount outstanding to $5.3 million at quarter
end. The Company has made payments totaling $4.2 million in excess of
requirements and has the right to borrow such amount back if needed.
During the first nine months of 1997, $104,500 of the 12% Convertible Notes were
converted into 52,250 shares. At September 27, 1997 $5,122,500 of the 12%
Convertible Notes were outstanding.
The Company believes that it has adequate cash, cash flow and borrowing
capabilities in place to fund its working capital needs for the foreseeable
future.
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.
This document may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
current plans and expectations of NAI Technologies and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
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Page 13
looking statements. Important factors that could cause actual results to differ
include, among others, changes in government purchasing policies and budget
constraints, competition, the continuity of booking trends, the absence of
supply interruptions, new products' market acceptance and warranty performance.
Other Information
The Company entered into a sixth and seventh amendment to its Credit Agreement
with the primary lenders providing for certain amendments to the interest rate
payable and adjustments to the interest coverage ratio under the credit
agreement.
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Page 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10(i) - Sixth Amendment, dated as of July 31, 1997, to Amended and
Restated Credit Agreement, dated as of April 12, 1995, as
previously amended, among the Registrant, Chemical Bank, a
New York banking corporation ("Chemical"), the Bank of New
York, a New York banking corporation ("BNY"), and each of
the other financial institutions which from time to time
becomes a party thereto (together with Chemical and BNY, the
"Banks"), BNY as administrative agent (the "Administrative
Agent"), and Chemical as collateral agent (the "Collateral
Agent").
10(ii) - Seventh Amendment and Waiver, dated as of November 5, 1997,
to Amended and Restated Credit Agreement, dated as of
April 12, 1995, as previously amended, among the Registrant,
the Banks, the Administrative Agent and the Collateral Agent.
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule (Edgar Filing only)
b) Reports on Form 8-K
Registrant filed a current report on Form 8-K dated September 25,
1997 with respect to Registrant's press release announcing that
the Registrant expected to report a loss for the third quarter,
1997, due to a one-time write-down of approximately $3.0 million
that is substantially related to inventory write-downs at its
Codar Technology Inc. Subsidiary, lower than anticipated sales
at Codar and a faster than anticipated decline in the sales of
the Wilcom subsidiary's standard MFT analog line treatment
products.
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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 November 6, 1997 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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Exhibit 10(i)
SIXTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
SIXTH AMENDMENT, dated as of July 31, 1997 (the "Amendment"), to
the Amended and Restated Credit Agreement, dated as of April 12, 1995, among NAI
Technologies, Inc., a New York corporation (the "Borrower"), The Chase Manhattan
Bank, a New York banking corporation, formerly known as Chemical Bank ("Chase"),
The Bank of New York, a New York banking corporation ("BNY"), and each of the
other financial institutions which from time to time becomes party thereto
(together with Chase and BNY, the "Banks"), BNY, as administrative agent (in
such capacity, the "Administrative Agent"), and Chase, as collateral agent (in
such capacity, the "Collateral Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and
the Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995, (as amended by certain amendments, dated
as of August 14, 1995, October 13, 1995, November 6, 1995, January 5, 1996, and
February 13, 1996, and as hereafter amended, modified and supplemented from time
to time, the "Credit Agreement");
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement and used herein are used herein as therein defined;
WHEREAS, the Borrower has requested and the Banks have agreed to
enter into this Amendment to provide for, among other things, amendments to the
interest rate payable with respect to the Loans.
Accordingly, the parties hereto hereby agree as follows:
Section 1. Certain Terminology. All references in the
Credit Agreement to "Chemical Bank" and "Chemical" shall be
amended to read "The Chase Manhattan Bank" and "Chase",
respectively.
Section 2. Amendment to Article I. Article I of the Credit
Agreement is hereby amended by amending and restating the definitions of
"Guarantors, "Security Agreements" and "Termination Date" in their entirety as
follows:
<PAGE>
<PAGE>
"Guarantors" shall mean NAI-SDC, Wilcom, Codar and, from and
after the execution and delivery of the Guarantees required
pursuant to Section 5.09 hereof, any new Subsidiaries of the
Borrower.
"Security Agreements" shall mean those certain Amended and
Restated Security Agreements, dated the date hereof, executed by
NAI and each of the Guarantors in favor of the Collateral Agent
for the benefit of the Banks in substantially the form of
Exhibits B-1 and B2, respectively, as the same may be amended,
modified or supplemented from time to time.
"Termination Date" shall mean the earliest to occur of (i) the
Maturity Date and (ii) the acceleration of the Loans and the
termination of the Total Commitment in accordance with the terms
hereof.
Section 3. Amendment to Article II. Section 2.5 of
the Credit Agreement is hereby amended by replacing the language
"1-3/4%." at the end of subsection (a) with "1%."
Section 4. Amendment to Article IV. Article IV of the Credit
Agreement is hereby amended by amending Section 4.01(d) by replacing the
language "B-1, B-2 and B-3." At the end of subsection (d) with "B-1 and B-2."
and amending and restating Section 4.03 in its entirety to read as follows:
Section 4.03. [RESERVED]
Section 5. Amendment to Article V. Article V of the Credit
Agreement is hereby amended by (a) amending and restating Sections 5.01(d) and
(e) in their entirety to read as follows:
(d) [RESERVED]
(e) [RESERVED]
and (b) amending and restating Section 5.16 in its entirety to
read as follows:
Section 5.16 [RESERVED]
Section 6. Waiver. The Banks hereby waive any Default or Event of
Default arising from the failure of the Borrower to comply with the requirements
of: (i) any of Sections 5.01(d), 5.01(e) or 5.16 of the Credit Agreement and
(ii) Section 6.02, with respect to the dissolution of Arathon by Borrower,
effective September 23, 1996.
Section 7. Termination. The Banks hereby agree to
terminate each of the (i) Security Agreement, dated as of April
12, 1995, between Arathon and the Collateral Agent for the
-2-
<PAGE>
<PAGE>
benefit of the Banks and (ii) Amended and Restated Guaranty of Performance and
Payment, dated as of April 12, 1995 made by Arathon in favor of the Collateral
Agent for the benefit of the Banks, and all the covenants and obligations
existing thereunder.
Section 8. Confirmation of Liens. The Borrower hereby confirms
that, pursuant to the terms of the Credit Agreement and the Security Documents,
the Borrower and the Guarantors have granted Liens on all of their assets to the
Collateral Agent for the benefit of the Banks. The Borrower hereby further
confirms that it will not and will not permit its Subsidiaries to incur, create,
assume or suffer to exist any Lien on any property or Subsidiaries other than
those permitted by Section 6.01 of the Credit Agreement, and any such granting
of any such Lien in favor of any third person, including the holders of the
Subordinated Indebtedness shall constitute an Event of Default under the Credit
Agreement. Nothing contained herein shall constitute a release or modification
of any Lien in favor of the Collateral Agent and the Banks in any Collateral
which constitutes security for any of the Obligations.
Section 9. Counterparts. This Amendment may be
executed in any number of counterparts, each of which shall
constitute an original and all of which when taken together shall
constitute one and the same instrument.
Section 10. Conditions to Effectiveness. This Amendment shall
become effective as of the date hereof (the "Effective Date") when all of the
following shall have occurred:
(a) The Banks shall have each received counterparts of this
Amendment, duly executed by the Borrower and consented to by each of the
Guarantors;
(b) The Borrower shall be in compliance with all of
the terms and provisions set forth in the Credit Agreement to be
observed and performed; and
(c) The Banks shall have received a certificate of the Secretary
or Executive Vice President of the Borrower dated the Effective Date and
certifying that (i) after giving effect to this Amendment, no Event of Default
or event which upon notice or lapse of time or both would constitute an Event of
Default shall have occurred and be continuing and (ii) all representations and
warranties contained in Section 3 of the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of the
Effective Date, except to the extent that such representations and warranties
expressly relate to an earlier date.
Section 11. Ratification. Except to the extent hereby
amended, the Credit Agreement remains in full force and effect
and is hereby ratified and affirmed. References in the Loan
-3-
<PAGE>
<PAGE>
Documents to the Credit Agreement shall mean such document as amended by this
Amendment, as the same may be further amended, supplemented or otherwise
modified from time to time.
Section 12. Costs and Expenses. All out-of-pocket expenses
incurred by the Banks, including the reasonable fees and disbursements of
Zalkin, Rodin & Goodman LLP, special counsel for the Agents and the Banks,
incurred in connection with the negotiation and preparation of this Amendment
shall be paid by the Borrower as provided in Section 9.05 of the Credit
Agreement. The Borrower hereby confirms that the Borrower shall be obligated to
reimburse the Banks' reasonable expenses incurred in the retention of a
financial advisor to the Banks in connection with the administration of the
Loans or the protection or enforcement of the Banks' rights in connection
therewith.
Section 13. References. This Amendment shall be limited precisely
as written and shall not be deemed (a) to be a consent granted pursuant to, or a
waiver or modification of, any other term or condition of the Credit Agreement
or any of the instruments or agreements referred to therein or (b) to prejudice
any right or rights which the Administrative Agent, the Collateral Agent or the
Banks may now have or have in the future under or in connection with the Credit
Agreement or the Loan Documents or any of the instruments or agreements referred
to therein.
Section 14. Applicable Law. THIS AMENDMENT SHALL IN
ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY WITHIN SUCH STATE.
Section 15. Headings. Section headings in this
Amendment are included herein for convenience or reference only
and are not to affect the construction of, or to be taken into
consideration in interpreting, this Amendment.
Section 16. Integration. This Amendment represents the entire
agreement of the parties hereto with respect to the amendment of the Credit
Agreement and the terms of any letters and other documentation entered into
among the Borrower and any Bank or the Administrative Agent or the Collateral
Agent prior to the execution of this Amendment which relate to the amendment of
the Credit Agreement shall be replaced by the terms of this Amendment.
-4-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By Richard A. Schneider
_________________________________
Title: Executive Vice President
THE BANK OF NEW YORK
as Administrative Agent and as
a Bank
By Brenda M. Sorg
_________________________________
Vice President
THE CHASE MANHATTAN BANK as
Collateral Agent and as a Bank
By Diane E. Vaccarelli
_________________________________
Vice President
Consented to as of this
31st day of July, 1997
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By: Richard A. Schneider
_____________________________
Title: Treasurer
WILCOM, INC.
By: Richard A. Schneider
_____________________________
Title: Treasurer
CODAR TECHNOLOGY, INC.
By: Richard A. Schneider
_____________________________
Title: Treasurer
-5-
<PAGE>
<PAGE>
Exhibit 10(ii)
SEVENTH AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
SEVENTH AMENDMENT AND WAIVER, dated as of November 5, 1997 (the
"Amendment"), to the Amended and Restated Credit Agreement, dated as of April
12, 1995, among NAI Technologies, Inc., a New York corporation (the "Borrower"),
The Chase Manhattan Bank, a New York banking corporation, formerly known as
Chemical Bank ("Chase"), The Bank of New York, a New York banking corporation
("BNY"), and each of the other financial institutions which from time to time
becomes party thereto (together with Chase and BNY, the "Banks"), BNY, as
administrative agent (in such capacity, the "Administrative Agent"), and Chase,
as collateral agent (in such capacity, the "Collateral Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and
the Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995, (as amended by certain amendments, dated
as of August 14, 1995, October 13, 1995, November 6, 1995, January 5, 1996,
February 13, 1996, and July 31, 1997, and as hereafter amended, modified and
supplemented from time to time, the "Credit Agreement");
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement and used herein are used herein as therein defined;
WHEREAS, the Borrower has requested and the Banks have agreed to
enter into this Amendment to provide for, among other things, amendments to
certain financial covenants set forth in the Credit Agreement.
Accordingly, the parties hereto hereby agree as follows:
Section 1. Waiver. The Banks hereby waive any Default or Event of
Default arising from the failure of the Borrower to comply with the requirements
of Section 6.17 of the Credit Agreement for the four fiscal quarter period
ending on September 30, 1997.
Section 2. Amendment to Section 6.17. Section 6.17 of the Credit
Agreement is hereby amended in its entirety to read as follows:
<PAGE>
<PAGE>
Section 6.17. Maintenance of Interest Coverage
Ratio. Permit the Interest Coverage Ratio for the
periods set forth below to fall below the ratios set
forth opposite such periods:
Period Ratio
One Fiscal Quarter ending December 1.5 to 1
31, 1997
Two Fiscal Quarters ending March 31, 1.5 to 1
1998
Three Fiscal Quarters ending June 30, 1.5 to 1
1998
Four Fiscal Quarters ending September 1.5 to 1
30, 1998 and thereafter
Section 3. Counterparts. This Amendment may be
executed in any number of counterparts, each of which shall
constitute an original and all of which when taken together shall
constitute one and the same instrument.
Section 4. Conditions to Effectiveness. This Amendment shall
become effective as of the date hereof (the "Effective Date") when all of the
following shall have occurred:
(a) The Banks shall have each received counterparts of this
Amendment, duly executed by the Borrower and consented to by each of the
Guarantors;
(b) The Borrower shall be in compliance with all of
the terms and provisions set forth in the Credit Agreement to be
observed and performed; and
(c) The Banks shall have received a certificate of the Secretary
or Executive Vice President of the Borrower dated the Effective Date and
certifying that (i) after giving effect to this Amendment, no Event of Default
or event which upon notice or lapse of time or both would constitute an Event of
Default shall have occurred and be continuing and (ii) all representations and
warranties contained in Section 3 of the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of the
Effective Date, except to the extent that such representations and warranties
expressly relate to an earlier date.
-2-
<PAGE>
<PAGE>
Section 5. Ratification. Except to the extent hereby amended, the
Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents to the Credit Agreement shall mean
such document as amended by this Amendment, as the same may be further amended,
supplemented or otherwise modified from time to time.
Section 6. Costs and Expenses. All out-of-pocket expenses
incurred by the Banks, including the reasonable fees and disbursements of
Zalkin, Rodin & Goodman LLP, special counsel for the Agents and the Banks,
incurred in connection with the negotiation and preparation of this Amendment
shall be paid by the Borrower as provided in Section 9.05 of the Credit
Agreement. The Borrower hereby confirms that the Borrower shall be obligated to
reimburse the Banks' reasonable expenses incurred in the retention of a
financial advisor to the Banks in connection with the administration of the
Loans or the protection or enforcement of the Banks' rights in connection
therewith.
Section 7. References. This Amendment shall be limited precisely
as written and shall not be deemed (a) to be a consent granted pursuant to, or a
waiver or modification of, any other term or condition of the Credit Agreement
or any of the instruments or agreements referred to therein or (b) to prejudice
any right or rights which the Administrative Agent, the Collateral Agent or the
Banks may now have or have in the future under or in connection with the Credit
Agreement or the Loan Documents or any of the instruments or agreements referred
to therein.
Section 8. Applicable Law. THIS AMENDMENT SHALL IN
ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY WITHIN SUCH STATE.
Section 9. Headings. Section headings in this
Amendment are included herein for convenience or reference only
and are not to affect the construction of, or to be taken into
consideration in interpreting, this Amendment.
Section 10. Integration. This Amendment represents the entire
agreement of the parties hereto with respect to the amendment of the Credit
Agreement and the terms of any letters and other documentation entered into
among the Borrower and any Bank or the Administrative Agent or the Collateral
Agent prior to the execution of this Amendment which relate to the amendment of
the Credit Agreement shall be replaced by the terms of this Amendment.
-3-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By Richard A. Schneider
_________________________________
Title: Executive Vice President
THE BANK OF NEW YORK
as Administrative Agent and as
a Bank
By Brenda M. Sorg
_________________________________
Vice President
THE CHASE MANHATTAN BANK as
Collateral Agent and as a Bank
By Diane E. Vaccarelli
____________________________
Vice President
Consented to as of this
5th day of November, 1997
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By: Richard A. Schneider
_____________________________
Title: Treasurer
WILCOM, INC.
By: Richard A. Schneider
_____________________________
Title: Treasurer
CODAR TECHNOLOGY, INC.
By: Richard A. Schneider
_____________________________
Title: Treasurer
-4-
<PAGE>
<PAGE>
Exhibit 11
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Three Months Ended
Sept. 27, Sept. 28,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) ($3,409) $964
Average shares of common stock outstanding during the period 9,133 8,571
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (primary) 1,026 429
Total shares used to calculate PEPS * 9,133 9,000
---------- ---------
Primary earnings per share ($0.37) $0.11
========== =========
Net Income (loss) ($3,409) 964
Interest on Convertible Debt (Net of Taxes) 153 184
Amortization of OID (Net of Taxes) 33 19
Amortization of Deferred Debt Expense (Net of Taxes) 80 120
---------- ---------
Adjusted Net Income (3,143) 1,287
========== =========
Average shares of common stock outstanding during the period 9,133 8,571
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (fully diluted) 1,026 561
Dilution from Convertible Debt 2,561 2,789
Total shares used to calculate FDEPS * 9,133 11,921
---------- ---------
Fully Diluted earnings per share ($0.34) $0.11
========== =========
* Per APB 15, when a net loss is reported, exercise or conversion is
not to be assumed.
<PAGE>
<PAGE>
Exhibit 11
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
(In thousands)
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Nine Months Ended
Sept. 27, Sept. 28,
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) ($2,529) $1,329
Average shares of common stock outstanding during the period 9,079 8,022
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (primary) 1,233 304
Total shares used to calculate PEPS * 9,079 8,326
---------- ---------
Primary earnings per share ($0.28) $0.16
========== =========
Net Income (loss) (2,529) 1,329
Interest on Convertible Debt (Net of Taxes) 461 548
Amortization of OID (Net of Taxes) 109 79
Amortization of Deferred Debt Expense (Net of Taxes) 260 345
---------- ---------
Adjusted Net Income (1,699) 2,301
========== =========
Average shares of common stock outstanding during the period 9,079 8,022
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (primary) 1,233 478
Dilution from Convertible Debt 2,561 2,789
Total shares used to calculate FDEPS * 9,079 11,289
---------- ---------
Fully Diluted earnings per share ($0.19) $0.20
========== =========
</TABLE>
-2-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1997
<CASH> 963
<SECURITIES> 0
<RECEIVABLES> 10,017
<ALLOWANCES> 0
<INVENTORY> 7,269
<CURRENT-ASSETS> 19,022
<PP&E> 10,926
<DEPRECIATION> (7,958)
<TOTAL-ASSETS> 32,635
<CURRENT-LIABILITIES> 8,320
<BONDS> 5,123
<COMMON> 916
0
0
<OTHER-SE> 12,577
<TOTAL-LIABILITY-AND-EQUITY> 32,635
<SALES> 39,727
<TOTAL-REVENUES> 39,727
<CGS> 32,332
<TOTAL-COSTS> 40,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,149
<INCOME-PRETAX> (2,025)
<INCOME-TAX> 504
<INCOME-CONTINUING> (2,529)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,529)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
