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(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 March 29, 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, NY 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 May 7, 1997, 9,069,437 shares of NAI Technologies, Inc.'s $.10 par value
Common Stock were outstanding.
Page 1 of 11 Pages
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Page 2
NAI TECHNOLOGIES, INC.
INDEX
PAGE
Facing Sheet 1
Index 2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3
March 29, 1997 and December 31, 1996
Consolidated Statements of Operations - 4
Three months ended March 29, 1997 and
March 30, 1996
Consolidated Statements of Cash Flows - 5
Three months ended March 29, 1997 and
March 30, 1996
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 vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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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>
- ------------------------------------------------------------------------------------------------
March 29, Dec. 31,
1997 1996
(Audited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,926 $2,727
Accounts receivable, net 10,037 12,693
Inventories, net 10,045 10,270
Deferred tax asset 166 173
Other current assets 553 597
- ------------------------------------------------------------------------------------------------
Total current assets 22,727 26,460
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Property, plant and equipment, net 3,362 3,523
Excess of cost over fair value of assets acquired, net 9,550 9,707
Other assets 1,565 1,681
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Total assets $37,204 $41,371
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- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,207 $ 6,907
Current installments of long-term debt 166 158
Accrued payroll and commissions 104 680
Other accrued expenses 3,170 3,894
Income taxes payable 718 580
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Total current liabilities 9,365 12,219
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Long-term debt 10,622 12,224
Other accrued expenses 870 912
Deferred income taxes 36 36
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Total liabilities 20,893 25,391
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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: 9,058,687
in 1997 and 9,016,937 in 1996 906 902
Capital in excess of par value 19,303 19,217
Foreign currency translation adjustment 175 313
Retained earnings (4,073) (4,452)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 16,311 15,980
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Total liabilities and shareholders' equity $37,204 $41,371
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</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
---------------------------
March 29, March 30,
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $13,062 $16,503
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Cost of sales 9,413 13,238
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Gross margin 3,649 3,265
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Selling expense 1,010 1,114
General and administrative expense 1,070 1,370
Research and development 424 367
Other 128 164
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Total expenses, net 2,632 3,015
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Operating income 1,017 250
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Non-operating income (expense):
Interest income 14 55
Amortization of deferred debt costs (104) (55)
Interest expense (401) (565)
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(491) (565)
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Earnings (loss) before income taxes 526 (315)
Provision for income taxes 147 135
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Net earnings (loss) $ 379 $ (450)
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Earnings (loss) per common share $ 0.04 $ (0.06)
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Average shares outstanding 10,199 7,459
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- ------------------------------------------------------------------------------------------------
</TABLE>
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Page 5
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
For the Three Months Ended
---------------------------
March 29, March 30,
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $ 379 $ (450)
Adjustments to reconcile net earnings (loss)
to cash provided by operating activities:
Depreciation and amortization 538 598
Gain on disposal of property, plant and equipment (7) -
Provision for inventory obsolescence 13 103
Loss on sale of notes receivable - 89
Change in operating assets and liabilities,
excluding effects from acquisitions, dispositions
and foreign currency adjustments:
Accounts receivable 2,656 1,598
Inventories 212 (1,325)
Accounts payable and other accrued expenses (3,042) (3,356)
Income taxes 145 125
Other, net 51 (1,076)
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Net cash flow provided by (used in) operating activities 945 (3,694)
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Cash Flows from Investing Activities:
Purchase of property, plant and equipment (94) (245)
Proceeds from sale of property, plant and equipment 17 -
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (77) (245)
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Cash Flows from Financing Activities:
Issuances of notes payable - 53
Issuance of 12% Convertible Notes - 5,742
Payments of notes payable - (53)
Payments of long-term debt (1,621) (57)
Receipts of notes receivable - 1,101
Proceeds from exercise of stock options
and stock purchase plan 78 -
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Net cash used in (provided by) financing activities (1,543) 6,786
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Effect of foreign currency exchange rates on cash (126) (27)
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Net (decrease) increase in cash and cash equivalents (801) 2,820
Cash and cash equivalents at beginning of year 2,727 2,605
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Cash and cash equivalents at end of period $1,926 $5,425
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Supplemental disclosure of cash flow information:
Cash paid for (refunded):
Interest $ 347 $ 417
Income taxes $ - $ 3
Conversion of 12% Notes into common stock $ 12 $ -
- ------------------------------------------------------------------------------------------------
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</TABLE>
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Page 6
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 29, 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
1996 Annual Report on Form 10-K for the year ended December 31, 1996.
INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
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March 29, Dec. 31,
1997 1996
(Audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands of dollars)
Raw materials and components $ 8,828 $ 8,567
Work-in-process 2,246 3,010
Finished goods 1,244 1,204
Allowance for obsolescence (2,273) (2,403)
Unliquidated progress payments -- (108)
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Inventories, net $ 10,045 $ 10,270
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</TABLE>
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Page 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
First Quarter 1997 Compared with First 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 first quarter of 1997 were
$13.1 million, a 21% decline when compared with $16.5 million for the same
period in 1996.
The following chart provides the sales breakdown by subsidiary:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Electronic Systems Segment
Codar Technology, Inc. $ 3,933 $ 8,191 (52%)
NAI Systems Division 4,381 3,079 42%
Lynwood Scientific Dev. Ltd. 4,060 3,220 26%
Inter-company (356) (109)
--------------------------------
Total Electronic Systems Segment 12,018 14,381 (16%)
Telecommunications Segment
Wilcom, Inc. 1,044 2,122 (51%)
--------------------------------
Total Telecommunications Segment 1,044 2,122 (51%)
--------------------------------
TOTAL $13,062 $16,503 (21%)
--------------------------------
--------------------------------
</TABLE>
Sales in the Electronic Systems segment (net of intercompany eliminations)
decreased 16% to $12.0 million from $14.4 million for the same period in 1996.
Sales increases of 42% at NAI Systems Division and 26% at Lynwood were more
than offset by a 52% sales decline at Codar. The sales decline at Codar is
attributable to several factors most notably a decline in the Company's rate of
booking new orders. Codar considers the bookings decline to be temporary and
attributes it to delays in anticipated awards as well as the usual delays
inherent when a Company is rebuilding its internal sales and marketing
resources. The quarter on quarter sales 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 45% 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.
Sales in the Telecommunications segment decreased 51% to $1.0 million as
compared to $2.1 million for the same period in 1996. The decrease in sales was
attributable to reduced orders as well as delays in the introduction of the
Company's enhanced TurboAmp product line. The new TurboAmp products are
expected to be available in June of this year. The Company is exploring all
avenues to increase its business level and has recently added additional sales
resources.
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The gross margin percentage for the first quarter 1997 was 28.0%, well above the
19.8% in the comparable quarter of 1996. The following chart provides the gross
margin percentage by subsidiary.
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Codar Technology, Inc. 15.9% 8.9%
NAI Systems Division 27.6% 20.7%
Lynwood Scientific Development Ltd. 36.8% 34.0%
Wilcom, Inc. 31.6% 31.7%
</TABLE>
The improved margins at Codar are attributable to significant cost reduction
efforts at the Company, as well as an emphasis in competing for higher margin
work. 1996's first quarter was also adversely impacted by several contracts for
which the Company had previously recorded losses and for which no margin was
earned, despite recorded sales.
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 quarter of 1997 was $1.0 million as compared with
$1.1 million for the same period in 1996. The 9% decrease is attributable to
reduced sales and the Company's ongoing cost reduction programs.
General and administrative expenses for the first quarter 1997 were $1.1
million as compared with $1.4 million in same period of 1996. Most of the
decline is attributable to head count reductions initiated in 1996 at Codar.
Company-sponsored research and development expenditures for the first quarter
of 1997 were $0.42 million as compared with $0.37 million for the same period
in 1996, an increase of 16%. The Company expects that the level of the first
quarter 1997 internal research and development expenditures will be relatively
constant for the remainder of 1997.
For the first quarter of 1997, the Company had operating income of $1.0 million
as compared with operating income of $0.3 million for the same period in 1996.
Interest expense and amortization of deferred debt costs, net of interest
income, was $0.5 million for the first quarter of 1997 as compared with $0.6
million for the same period in 1996.
The Company accrued an income tax expense of $0.147 million, which equates to
an effective tax rate of 28%. 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 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 quarter of 1997 the Company recorded net earnings of $0.379
million as compared with a net loss of $0.450 million in the first quarter of
1996. Net earnings per share was $0.04 per share as compared with $(0.06) per
share for the same period in 1996, based on a weighted average of 10.2 million
and 7.5 million shares outstanding, respectively.
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Page 9
Liquidity and Capital Resources
Cash and cash equivalents totaled $1.9 million at March 29, 1997, as compared
to $2.7 million at December 31, 1996. Cash provided by operating activities
amounted to $0.9 million in the first quarter of 1997, as compared to cash used
by operating activities of $3.7 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 12% Convertible Notes.
During the first quarter of 1997, the Company reduced outstanding bank debt by
$1.6 million bringing the total amount outstanding to $5.9 million at quarter
end. The Company has made payments totaling $4.4 million in excess of
requirements and has the right to borrow such amount back if needed.
During the first quarter of 1997, $18,500 of 12% Convertible notes were
converted into 9,250 shares. There still remains $5,208,500 of notes
outstanding as of March 29, 1997.
The Company believes that it has adequate cash and borrowing capabilities in
place to fund future working capital needs.
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 forwardlooking
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.
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Page 10
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders of NAI Technologies, Inc. was held at the
Chase Manhattan Bank Building, 270 Park Avenue, New York, on April 30, 1997, at
10:00 a.m. There were 6,443,215 shares represented either in person or by
proxy, out of a total of 9,032,437 shares issued and outstanding on March 12,
1997, the record date.
Agenda Item 1, the Shareholders elected Richard A. Schneider,
Stephen A. Barre, Edward L. Hennessy, Jr. and Dennis McCarthy to serve as
Class II Directors until the 1999 Annual Meeting of Shareholders and until
their successors have been elected with a vote of 6,437,109 shares, which is
in excess of the plurality of outstanding shares required by law.
Agenda Item 2, the ratification of the selection of KPMG Peat
Marwick as independent auditors for the Company for fiscal year 1997, was
approved by a vote 6,430,462 shares, which was in excess of the majority of the
shares present and voting at the meeting required by law, while 2,168 shares
were voted in opposition and 10,405 abstained.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule (Edgar Filing only)
b) Reports on Form 8-K
None.
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Page 11
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 9, 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 11
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
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Three Three
Months Months
Ended Ended
Mar 29, Mar 30,
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) $379 ($450)
Average shares of common stock outstanding during the period 9,028 7,459
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (primary) 1,171 0
Total shares used to calculate PEPS * 10,199 7,459
-------- -------
Primary earnings per share $0.04 ($0.06)
-------- -------
-------- -------
Net Income (loss) 379 (450)
Interest on Convertible Debt (Net of Taxes) 151 146
Amortization of OID (Net of Taxes) 44 26
Amortization of Deferred Debt Expense (Net of Taxes) 104 55
-------- -------
Adjusted Net Income 678 (223)
-------- -------
-------- -------
Average shares of common stock outstanding during the period 9,028 7,459
Incremental shares from assumed exercise of stock options, stock
warrants & employee stock purchase plan (fully diluted) 1,357 3
Dilution from Convertible Debt 2,604 4,121
Total shares used to calculate FDEPS * 12,989 7,459
-------- -------
Fully Diluted earnings per share $0.05 ($0.03)
-------- -------
-------- -------
</TABLE>
* Per APB 15, when a net loss is reported, exercise or conversion is not to be
assumed.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 1,926
<SECURITIES> 0
<RECEIVABLES> 10,037
<ALLOWANCES> 0
<INVENTORY> 10,045
<CURRENT-ASSETS> 22,727
<PP&E> 10,995
<DEPRECIATION> (7,633)
<TOTAL-ASSETS> 37,204
<CURRENT-LIABILITIES> 9,365
<BONDS> 5,209
<COMMON> 906
0
0
<OTHER-SE> 15,405
<TOTAL-LIABILITY-AND-EQUITY> 37,204
<SALES> 13,062
<TOTAL-REVENUES> 13,062
<CGS> 9,413
<TOTAL-COSTS> 12,045
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> 526
<INCOME-TAX> 147
<INCOME-CONTINUING> 379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
