<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended May 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-18253
NDC Automation, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 56-1460497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
(Address of principal executive offices)
(704) 362-1115
(Issuer's telephone number)
N/A
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___No___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 15, 1997, there were 3,453,451 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes___; No X
This document contains 21 pages. The Exhibit Index is located on page 16 .
<PAGE>
I N D E X
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets 3- 4
May 31, 1997 (Unaudited) and November 30, 1996 5
Condensed Statements of Operations
Three and Six months ended May 31, 1997 and May 31, 1996 6
(Unaudited)
Condensed Statements of Cash Flows Six months ended May 31,
1997 and May 31, 1996 (Unaudited)
Notes to Condensed Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities
14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits -- Press Releases and other Exhibits 14
(b) Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
May 31, November 30,
1997 1996
(Unaudited)
- -------------------------------------------------------------------------
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 145,545 $ 399,501
Accounts receivables, net 935,865 1,526,390
Inventories 1,003,796 1,126,398
Costs and estimated earnings in excess of
billings on uncompleted contracts 93,937 49,277
Prepaid expenses and other assets 49,074 51,935
- -------------------------------------------------------------------------
Total current assets $2,228,217 $3,153,501
- -------------------------------------------------------------------------
OTHER ASSETS $ 21,281 $ 21,281
- -------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 229,948 226,559
Machinery and equipment 153,572 153,572
Software 102,650 102,650
Vehicles -- 23,629
- -------------------------------------------------------------------------
$1,912,793 $1,933,033
Less accumulated depreciation 734,888 693,234
- -------------------------------------------------------------------------
$1,177,905 $1,239,799
- -------------------------------------------------------------------------
INTANGIBLE ASSETS $ 97,303 $ 142,213
- -------------------------------------------------------------------------
$3,524,706 $4,556,794
=========================================================================
Note: The Condensed Balance sheet at November 30, 1996 has been taken from the
Audited Financial Statements at that date.
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
May 31, November 30,
1997 1996
(Unaudited)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ 457,395 $ 847,217
Current maturities of long- term debt (Note 4) 61,590 68,410
Accounts payable and accrued expenses;
including affiliates $266,126 at 1997
and $422,050 at 1996 514,359 702,305
Billings in excess of costs and estimated
earnings on uncompleted contracts 54,257 118,657
- ---------------------------------------------------------------------------------------
Total current liabilities $ 1,087,601 $ 1,736,589
- ---------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 4 ) $ 1,075,105 $ 1,102,264
- ---------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $- $-
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 1997 and 1996; 3,453,451 shares
Issued at 1997 and 1996 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (2,884,100) (2,528,159)
- ---------------------------------------------------------------------------------------
$ 1,362,000 $ 1,717,941
- ---------------------------------------------------------------------------------------
$ 3,524,706 $ 4,556,794
=======================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
MAY 31, May 31, MAY 31, May 31,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,219,782 $ 1,465,721 $ 2,211,735 $ 2,953,895
Cost of goods sold 749,706 878,123 1,343,538 1,800,232
- ----------------------------------------------------------------------------------------------------
Gross profit $ 470,076 $ 587,598 $ 868,197 $ 1,153,663
- ----------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 194,043 $ 180,764 $ 347,543 $ 343,444
General and administrative 398,111 384,804 775,787 702,335
Research and development -- 605 -- 3,943
- ----------------------------------------------------------------------------------------------------
$ 592,154 $ 566,173 $ 1,123,330 $ 1,049,722
- ----------------------------------------------------------------------------------------------------
Operating income (loss) $ (122,078) $ 21,425 $ (255,133) $ 103,941
- ----------------------------------------------------------------------------------------------------
Net interest income (expense):
Interest income $ -- $ -- $ -- $ --
Interest expense (37,151) (57,879) (100,808) (108,904)
- ----------------------------------------------------------------------------------------------------
$ (37,151) $ (57,879) $ (100,808) $ (108,904)
- ----------------------------------------------------------------------------------------------------
Loss before income taxes $ (159,229) $ (36,454) $ (355,941) $ (4,963)
Federal and state income taxes (Note 2) -- -- -- --
- ----------------------------------------------------------------------------------------------------
Net loss $ (159,229) $ (36,454) $ (355,941) $ (4,963)
===================================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451 3,453,451 3,453,451
- ----------------------------------------------------------------------------------------------------
Loss per common share (Note 3) $ (0.05) $ (0.01) $ (0.10) $ (0.00)
===================================================================================================
Dividends per common share $ -- $ -- $ -- $ --
===================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
MAY 31, May 31,
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 164,421 $ 278,673
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ 5,035 $ -
Purchase of property and equipment (3,527) (25,238)
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES $ 1,508 $ (25,238)
- -----------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit agreement $(389,822) $ 357,898
Principal payments on long-term borrowings (33,979) (255,956)
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $(423,801) $ 101,942
- -----------------------------------------------------------------------------------------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ 3,916 $ 312
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $(253,956) $ 355,689
Cash and cash equivalents:
Beginning 399,501 164,781
- -----------------------------------------------------------------------------------------
Ending $ 145,545 $ 520,470
=========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 113,620 $ 93,342
Income taxes $ - $ -
=========================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
6
<PAGE>
NDC AUTOMATION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The unaudited internal condensed financial statements and related notes have
been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and changes in cash flows at May 31, 1997, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto for the fiscal year ended November 30, 1996. The results of operations
for the three months ended May 31, 1997 are not necessarily indicative of the
operating results for the full year.
Note 2. Income Taxes
The Company did not recognize any tax benefits in 1997 for its current loss as
all prior taxes were recognized in the previous financial statements and
utilization of operating loss carryforwards in the future are not assured to be
realized.
Note 3. Loss per common share:
Loss per common share is computed by dividing net loss applicable to common
shareholders by the weighted average common shares outstanding. Options issued
pursuant to the Stock Option Plans which are normally considered common stock
equivalents, have been excluded, as their inclusion does not dilute the
computation beyond the 3% materiality test or their exercise price was above the
market price for all of three consecutive months.
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4. Pledged Assets, Note Payable, Bank and Long-Term Debt
The Company has the following note payable to a Bank at May 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
The Loan Agreement allows the Company to borrow up to $1,250,000 and bears
interest at the lender's prime rate plus 1.50% per annum for the first $450,000
outstanding and prime plus 2.75% per annum for amounts in excess of $450,000.
The Company's loan outstanding shall not exceed the lesser of (a) U.S.
$1,250,000 or (b) 80% of qualified accounts receivable plus 50% of all Eligible
Inventory (as defined in the loan agreement) with a $400,000 cap on loans based
on Eligible Inventory. The loan agreement is further secured by 1) an Inventory
Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit issued by a
Swedish Bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to repay the letter
of credit bank any funds it disburses under the Letter of Credit. The Company is
ultimately responsible to repay to NDCab for any amounts it pays in reimbursing
the Letter of Credit Bank . The Repurchase Agreement guarantees that NDCab will
repurchase on certain conditions up to $400,000 worth of inventory, thereby
providing funds to pay lender should the Company be in default on its loan
obligations. The termination date of the Loan Agreement is April 1, 1998 or upon
demand by the Bank. (1)(2)
$ 457,395
===============================================================================================================================
Long-term debt consists of the following at May 31, 1997:
Mortgage note payable to a bank, based on a 9.5% fixed rate. Original principal
balance to be repaid in twenty-three (23) consecutive monthly principal and
interest payments of $13,912, with one final payment of approximately $1,007,403
due on May 16, 1999. The note is collaterized by the Company's land and building
with a carrying value of $ 1,040,900 The loan also contains certain financial
covenants to which the Company must adhere. As of May 31, 1997, the Company
obtained waivers for certain financial covenants as specified by the Mortgage
note agreement. $ 1,136,695
Less current maturities: 61,590
- -------------------------------------------------------------------------------------------------------------------------------
$ 1,075,105
===============================================================================================================================
</TABLE>
(1) The prime rate at May 31, 1997 was 8.50%
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable, inventory, software and intangibles.
Maturities of long-term debt at May 31, 1997 are as follows:
Year Ending
May 31,
- ---------------------------------------------------
1998 $ 61,590
1999 1,075,105
====================================================
$ 1,136,695
====================================================
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5. Reassignment of Statec Exclusive Distribution Agreement
On February 21, 1996 the Company and Statec Technologies, SA ("Statec") entered
into a letter of understanding under which the Company reassigned to Statec the
exclusive distribution and manufacturing rights for North America effective
March 1, 1996. The assignment was contingent upon Statec making the following
payments for a total of $183,000, excluding inventory. The payments required
were as follows:
o A down payment of $15,000 was due March 1, 1996
o Twenty-eight (28) monthly installments of $6,000 each, commenced
March 1, 1996 for a total of $168,000.
o Statec was to repurchase all NDCA inventory related to Statec
products at the Company's net book value plus $15,000. All the
inventory was to be repurchased on or before November 30, 1996.
The transfer permitted the Company to reduce associated fixed overhead expenses
with the sale of such products and allowed the Company to focus solely on its
AGVS product line.
As of January 31, 1997 Statec was in default under the agreement by not
repurchasing the inventory worth $71,272 and had not paid the agreed monthly
installments of $6,000 since December 1996. There remained a total number of 19
unpaid installment equaling $114,000. In February of 1997, the Company was
notified that Statec became subject to a court-ordered liquidation proceeding
under French law. On March 27, 1997, the Company received $47,884 for the
repurchase of all NDCA inventory related to Statec products and $20,000 per the
Supplemental Agreement between the Company and Statec. The amounts paid were
approved by the French court and terminate all obligations from Statec to the
Company per the Supplemental Agreement.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements (including the notes thereto) presented elsewhere
herein.
Overview
The Company derives virtually all of its revenues from the sale of
hardware, software and engineering services in connection with projects
incorporating its Automated Guided Vehicle (AGV) control technology. Prior to
1996 the Company was also actively involved in the sale of Radio Frequency
Identification (RFID) products. In years prior to 1995 the Company's net
revenues from AGV systems, vehicles and technology were derived primarily from
sales to customers serving two industries -- textiles and newspaper publishing.
Net revenues since 1995 however have been less concentrated in these industries.
The Company's results of operations can be expected to continue to depend
substantially upon the capital expenditure levels in those industries and in
other industries that it may enter. In addition, during 1996, the Company
refocused its sales efforts to existing Original Equipment Manufacturers (OEM)
and system integrators in the AGV systems industry. This strategy significantly
reduces the potential of selling systems to end users as the Company wants to
avoid competing with its potential customers. The Company believes it must
convert several OEM and system integrators away from their AGV technology to the
Company's technology to increase its present market share. Such technology
transfers can take one to several years before the Company will recognize
revenues from such relationships. Such customers must also replace in volume and
margin what the Company could otherwise obtain selling direct to end users.
There can be no assurances that such a strategy will be successful in the short
or long term. In any event, the Company believes it must continue to expose end
users to the Company's products by means of trade shows and industry
advertising.
Due to the long sales cycle involved, uncertainties in timing of
projects, and the large dollar amount a typical project usually bears to the
Company's historical and current quarterly and annual net revenues, the Company
has experienced, and may be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.
The Company sells its products and services primarily in two ways.
Vehicles, technology and other products and services may be sold in a "project"
that becomes an integrated AGV system. The primary business is to sell hardware,
software and services as standard items, with less involvement by the Company in
overall system design. The Company generally would recognize lower net revenue
but would realize a higher gross profit margin percentage in selling standard
items, in each case compared to the sale of a project, due to the inclusion in
project sales of other vendors' products and services with margins generally
lower than the Company's own products and services. Between any given accounting
periods, the levels of and mixture of standard item sales and project sales can
cause considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.
Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major segment of
the project. Although the percentage of completion method will ordinarily smooth
out over time the net revenue and profitability effects of large projects, such
method nevertheless subjects the Company's results of operations to substantial
fluctuations dependent upon the progress of work on project segments. Such
segments can differ markedly from one another in amount and in gross profit
margin.
Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 20% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.
10
<PAGE>
Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivables and other assets.
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
RESULTS OF OPERATIONS
The table below shows (a) the relationship of income and expense
items relative to net revenues, and (b) the change between the comparable prior
period and current period, for the three-month and six-month periods ended May
31, 1997 and 1996, respectively. This table should be read in the context of the
Company's condensed statements of income presented elsewhere herein:
<TABLE>
<CAPTION>
Percentage of Change
Period to Period
Percentage of Net Revenues Increase (Decrease)
- -----------------------------------------------------------------------------------------------
Three Three
Three Months Six Months Months Months
Ended Ended Ended Ended
May 31, May 31, May 31, May 31, May 31, May 31,
1997 1996 1997 1996 1996 1996
% % % % % %
- ------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues 100.0 100.0 100.0 100.0 (16.8) (25.1)
Cost of Goods Sold 61.5 59.9 60.7 60.9 (14.6) (25.4)
- ------------------------------ --------- --------- --------- --------- --------- ---------
Gross Profit 38.5 40.1 39.3 39.1 (20.0) (24.7)
- ------------------------------ --------- --------- --------- --------- --------- ---------
Operating expenses:
Selling 15.9 12.3 15.7 11.6 7.4 1.1
General and administrative 32.6 26.3 35.1 23.8 3.5 10.5
Research and development - - - 0.1 (100.0) (100.0)
- ------------------------------ --------- --------- --------- --------- --------- ---------
48.5 38.6 50.8 35.5 4.6 7.0
- ------------------------------ --------- --------- --------- --------- --------- ---------
Operating income (loss) (10.0) 1.5 (11.5) 3.6 * *
Net interest expense: (3.0) (3.9) (4.6) (3.7) (35.8) (7.4)
- ------------------------------ --------- --------- --------- --------- --------- ---------
Loss before income taxes (13.0) (2.4) (16.1) (0.1) 336.8 7071.9
Federal and state income taxes
(benefit) - - - - NA NA
============================== ========= ========= ========= ========= ========= =========
Net Loss (13.0) (2.4) (16.1) (0.1) 336.8 7071.9
============================== ========= ========= ========= ========= ========= =========
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
Quarter ended May 31, 1997 Compared to the Quarter Ended May 31, 1996
Net revenues decreased by $245,939 or 16.8% from $1,465,721 in the earlier
period to $1,219,782 in the latter period. The contributing factors which
resulted in lower revenues were a low opening backlog at February 28, 1997 and
the Company's continued focus on strategic sales alliances with Original
Equipment Manufacturers (OEM) and system integrators exclusively rather than
occasionally dealing direct with end users as in prior years.
Cost of goods sold decreased from $878,123 to $749,706 or 14.6% due primarily to
lower net revenues in 1997. As a percentage of net revenues, cost of goods sold
was comparable to 1996. Gross profit decreased by $117,522 or 20.0% from
$587,598 to $470,076, while gross profit as a percentage of net revenues
decreased to 38.5% from 40.1% due to the same factor.
11
<PAGE>
Selling expenses increased from $180,764 to $194,043, or,7.4%, due primarily to
higher advertising and marketing expenses during 1997 compared to 1996. General
and administrative expenses increased from $384,804 to $398,111, or 3.5% due
primarily to additional engineering training expenses. As a percentage of net
revenues, general and administrative expenses increased from 26.3% to 32.6%.
Primarily as a result of the foregoing, operating income decreased by $143,503
from $21,425 in the earlier period to an operating loss of $122,078 in the
latter period.
Net interest expense decreased from $57,879 to $37,151, a decrease of $20,728.
The net decrease is primarily due to lower borrowings compared to the prior
year.
Loss before income taxes increased by $122,775 from $36,454 to a loss of
$159,229, due primarily to the foregoing factors.
The Company did not recognize any tax benefits in 1997 domestically for its
current loss as all prior taxes have been recognized in the previous financial
statements and utilization of operating loss carryforwards in the future are not
assured.
Primarily as a result of the foregoing, net loss increased by $122,775 from
$36,454 to a net loss of $159,229.
Backlog. Backlog consists of all amounts contracted to be paid by customers but
not yet recognized as net revenues by the Company. At May 31, 1997, the Company
had a backlog of approximately $830,000 compared to approximately $1,450,000 one
year earlier. Although substantial fluctuations in backlog are considered normal
due to the size of AGV system contracts, the present low backlog is primarily
the result of the Company's focus away from sales to end users, which sales had
in prior years constituted a sizable portion of the Company's revenues and
backlog.. Substantial fluctuations in the industry makeup of the Company's
backlog also are considered normal.
Six Months Ended May 31, 1997 Compared to Six Months Ended May 31, 1996
Net revenues decreased by $742,160, or 25.1%, from $2,953,895 in the earlier
period to $2,211,735 in the latter period. The decline is primarily due to the
Company's marketing and sales strategy to target OEM customers and system
integrators only versus selling directly to end users.
Cost of goods sold decreased from $1,800,232 to $1,343,538, or 25.4%, due
primarily to the lower level of net revenues. As a percentage of net revenues,
cost of goods sold decreased from 60.9% to 60.7%. Gross profit decreased by
$117,522, or 24.7%, from $1,153,663 to $868,197, while gross profit as a
percentage of net revenues increased from 39.1% to 39.3%.
Selling expenses increased from $343,444 to $347,543, or 1.1% . General and
administrative expenses increased from $702,335 to $775,787, or 10.5%, primarily
due to increased expenses relating to personnel and a higher provision for bad
debts compared to the prior year.
Primarily as a result of the foregoing, the operating loss for the period was
$255,133 compared to an operating income of $103,941 the prior year.
Net interest expense decreased from $108,904 to $100,808, a decrease of 7.4%.
The decrease is primarily due to lower borrowings in the current year compared
to the prior year.
Loss before income taxes increased by $350,978, from a loss of $4,963 in 1996,
to a loss of $355,941 due primarily to the foregoing factors.
The Company did not recognize any tax benefits in 1997 domestically for its
current loss as all prior taxes have been recognized in the previous financial
statements and utilization of operating loss carryforwards in the future are not
assured.
Primarily as a result of the foregoing, the net loss increased by $350,978, from
$4,963 to a net loss of $355,941.
12
<PAGE>
Liquidity and Capital Resources
The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offerings, and private offerings, to satisfy its external financing
needs.
During the six months ended May 31, 1997 net cash provided by operating
activities was $164,421. The primary reason for the positive cash flow by
operating activities was that the Company significantly reduced its account
receivable balance from November 30, 1996 by collections. The positive cash flow
from operating activities allowed the Company to further reduce its Note payable
to its primary lender by $389,822.
The Company entered into a new Inventory and Accounts Receivable Loan and
Security Agreement ("Loan Agreement") February 28, 1997 with the National Bank
of Canada and National Canada Business Corp. (herein collectively called the
"Lender"). The Loan Agreement allows the Company to borrow up to a maximum of
$1,250,000. The new agreement provides for an increase in potential available
credit compared to the maximum available credit of $750,000 under the prior
credit arrangement with NationsBank, N.A.
Loans made under the new Loan Agreement are evidenced by a demand promissory
Note. The Loan Agreement allows the Company to borrow pursuant a borrowing
formula which is secured by Company's personal property as collateral. The
Company's outstanding loan amount at any one time shall not exceed the lesser of
(a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in
the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan
Agreement) with a $400,000 cap on loans based on eligible inventory. The
borrowed funds will bear interest at the Lender's prime rate plus 1.5% per annum
for the first $450,000 outstanding and prime plus 2.75% per annum for amounts
outstanding in excess of $450,000. The Loan Agreement is further secured by 1)
an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit
issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to
repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $400,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.
The lender, at its discretion, may demand payment upon written notice to the
Company . The maturity date of the Agreement is April 1, 1998 or upon demand
earlier by the Bank.
During May 1997, the Mortgage Loan maturity date was extended from February 10,
1998 to May 16,1999. The interest rate on the note was increased to 9.5% from
7.75% . The combined principle and interest monthly payment was changed to
$13,912 compared to $13,057 per the prior agreement. The above transaction
increases the Company's working capital per generally accepted accounting
principles.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Company was held on April
25, 1997.
(b) The following individuals were elected directors of the Company:
Goran P. R. Netzler
Ralph Dollander
Jan H. L. Jutander
Richard Schofield
T. Randolph Whitt
(c) Other matters voted upon and voting were as follows:
(i) Ratification of the selection of McGladrey & Pullen, LLP by the Board
of Directors as the Company's independent auditors.
For Abstain Against
3,219,501 4,265 32,555
(ii) Ratification of 1997 stock option plan.
For Abstain Against
2,200,824 985,437 70,060
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Mortgage Note modification Agreement
Press Releases:
None
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NDC AUTOMATION, INC.
(Registrant)
BY: /s/ Ralph Dollander
Ralph Dollander
President
Date: July 9,1997
BY: /s/ Claude Imbleau
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: July 9,1997
15
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
Designation
Number Under
Item 601 of Page
Exhibit Number Regulation S-K Exhibit Description Number
- --------------- -------------- ------------------------------------------------------------------------------ -------
(A) Exhibits:
<C> <C> <C> <C>
1. 10 North Carolina Note Modification Agreement between First Citizens Bank & Trust 17-21
Company and NDC Automation, Inc. dated May 16,1997.
2. 27 Financial schedule 22
</TABLE>
16
<PAGE>
EXHIBIT 10
FIRST-CITIZENS BANK & TRUST COMPANY
North Carolina Note Modification Agreement
May 16, 1997 Account# Future Obligation
$1,136,695.60 Obligator# 41730 Current Obligation # 17616
Outstanding Principal Balance as of the Date of this Agreement
The Parties to this Note Modification Agreement (this "Agreement") are:
o First Citizens Bank & Trust Company ("Lender"), the current owner and
holder of the Note and secured party under the terms of each instrument
which secures repayment of the Note.
o The following parties (collectively, the "Borrower," whether one or more),
each of whom is obligated under the terms of the Note as an original maker
or as one who has assumed the obligations of an original maker:
NDC Automation, Inc.
o The following parties (collectively, the "Guarantor" whether one of
more), if any, each of whom is obligated as a surety, guarantor or
endorser of the Note:
- --------------------------------------------------------------------------------
ORIGINAL NOTE
- --------------------------------------------------------------------------------
This Agreement modifies, amends and supplements that note (the "Note")
identified as follows:
Original amount of Note $1,387,000.00
Original date of Note February 17, 1993
Original payee: The original payee of the Note was First Citizens Bank & Trust
Company, unless the following blank is completed, in which case the original
payee was:
Original maker(s): The original makers(s) of the Note was/were the Borrower(s)
identified in this Agreement unless the following blank is completed, in which
case the original maker(s) was/were the following.
- --------------------------------------------------------------------------------
Borrower has requested that the Note and other Loan Documents be modified.
Lender has agreed to the modifications, subject to the terms and provisions of
this Agreement. For and in consideration of the premises, the parties to this
Agreement agree that the terms of the Note identified above and all other Loan
Documents executed in connection therewith are modified, amended and
supplemented as of the date of the Agreement (unless otherwise specified) to
effect the following changes to the loan transaction: (Complete applicable
sections. Sections not completed are deleted.)
1. REPAYMENT OF THE INDEBTEDNESS EVIDENCED BY THE NOTE. The outstanding
principal balance on the Note shall be payable, with interest (and with
credit insurance premiums, if applicable) as follows:
Interest Rate: Interest shall accrue on the outstanding principal balance
(Complete Section A or B or C)
(A) At the rate of 9.50 percent per annum.
(B) At the rate of______ percent per annum above (or below, if
checked) the Prime Rate established from the time to time by
First Citizens Bank & Trust Company (the "Index Rate"), not to
exceed a maximum total rate of ________percent per annum nor
fall below a minimum total rate of _______percent per annum.
Unless otherwise checked below, increases or decreases in the
total
17
<PAGE>
rate due to changes in the Index Rate shall become effective
on the calendar day each such change in the Index Rate occurs.
Increases or decreases in the total rate due to changes in the Index
Rate shall be effective on the first day of the calendar month
following the month in which such change in the Index Rate occurs.
If multiple changes in the Index Rate during a calendar month, the
Index Rate on the last day of the calendar month shall be
applicable.
(C) See Note Modification Agreement Addendum for interest rate
provisions, the terms and provisions of which are incorporated
herein by reference.
Payment Terms: (Complete Section A or B or C.)
(A) Amortizing Payments. The outstanding principal balance and
accrued interest (and credit insurance premiums, if applicable
shall be payable in 23 equal consecutive monthly (monthly,
quarterly, semi-annually, etc.) payments of $ 13,911.64 each
commencing on June 16, 1997 (the "Regular Payment Commencement
Date") and on the same day of each such calendar period
thereafter and one final payment of the balance due on May 16,
1999 (hereinafter referred to as "Maturity"), unless sooner
paid. The payment amount specified includes principal and
interest (and credit insurance premiums, if applicable).
Prior to the Regular Payment Commencement Date, interest on
the outstanding principal balance (and credit insurance
premiums, if applicable) shall be payable____________(monthly,
quarterly, semi-annually, etc.) beginning and consecutively on
the same day of each such calendar period thereafter until the
Regular Payment Commencement Date.
(B) Principal Payment Terms. The outstanding principal balance
shall be: (Complete Section 1 or 2 or 3)
(1) Payable in one single payment on _______________________
(hereafter referred to as "Maturity).
(2) Payable in ______________equal consecutive
_______________(monthly, quarterly, semi-annually, etc.)
payments of $__________each commencing on
__________________and on the same day of each such
calendar period thereafter and one final payment of the
balance due on _____________________(hereafter referred
to as "Maturity"), unless sooner paid.
(3) Payable on demand. (Note: This option is available only
for letter of credit).
Interest and Insurance Premium Payment Terms: In addition to
the principal payment(s) identified above, interest on the
outstanding principal balance (and credit insurance premiums,
if applicable) shall be (Complete Section 1 or 2).
(1) Payable in full on demand (if the Note contains a call
provision or is payable on demand) or at Maturity,
whichever first occurs.
(2) Payable ________________ (monthly, quarterly,
semi-annually. etc.) beginning _________________and
consecutively on the same day of each such calendar
period thereafter, with any accrued but unpaid interest
(and credit insurance premiums, if applicable) due and
payable in full on demand (if the Note contains a call
provision or is
18
<PAGE>
payable on demand) or at Maturity, whichever first
occurs.
(C) Other. See Note Modification Agreement Addendum for
payment terms the terms and provisions of which are
incorporated herein by reference.
2. CALL PROVISION. At any time after __________________Lender has the right
and option to "call" the Note due and payable and to demand payment in
full of the entire unpaid principal balance due under the Note, together
with all interest and other charges then accrued hereunder.
3. MODIFICATION FEE. A loan modification fee of $ 2,840.00 is due and
payable to Lender upon the signing of this Agreement.
4. COLLATERAL. All collateral securing the Note shall remain as collateral
for the Note as modified by this Agreement unless expressly released by
Lender. The following ADDITIONAL collateral and/or instruments is/are
being given to secure repayment of the Note.
5. OTHER MODIFICATIONS:
ALL OF THE "ADDITIONAL PROVISIONS" APPEARING ON THE REVERSE SIDE OF THIS
AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE AND ARE A MATERIAL PART OF THIS
AGREEMENT.
IN WITNESS WHEREOF, (i) each individual signing this Agreement has hereunto set
his or her hand and adopted as his or her seal the word "SEAL" set forth beside
his or her name, intending this to be a sealed instrument, (ii) Lender has
caused this Agreement to be executed in its name by a person or persons duly
authorized, and (iii) each other entity has caused this Agreement to be executed
in its name by a person or persons duly authorized and, if a corporation, its
corporate seal to be affixed hereto, otherwise having adopted the word "SEAL"
set forth beside its name as its seal, intending this to be a sealed instrument,
all by authority duly given and alias of the date of this Agreement.
- --------------------------------------------------------------------------------
BUSINESS ENTITY INDIVIDUALS
- --------------------------------------------------------------------------------
NDC AUTOMATION, INC.________________(SEAL) __________________________________
BY _/s/ Ralph G. Dollander__________(SEAL) __________________________________
TITLE President ____________________(SEAL) __________________________________
BY /s/ Claude Imbleau_____________(SEAL) __________________________________
TITLE _CFO__________________________(SEAL) __________________________________
- --------------------------------------------------------------------------------
19
<PAGE>
See Signature Addendum for additional signatures of Borrower(s) and Guarantor(s)
- --------------------------------------------------------------------------------
INSURANCE DISCLOSURE
- --------------------------------------------------------------------------------
Credit insurance is not required to obtain credit and will not be provided
unless I sign and agree to pay the additional cost. I want the
following insurance.
Type Premium
___ Credit Life $___________________
___ Joint Credit Life $___________________
___ Credit Disability/Accident TOTAL $___________________
& Health ("A&H") (Available only on Borrower A)
________________________________________________________________________________
Borrower A Age/DOB
________________________________________________________________________________
Borrower B (Joint Life Only) Age/DOB
- ------------------------------------------------------
Note: Credit insurance is available only for an individual borrower and
co-borrowers - it is NOT available for guarantors or endorsers. Credit insurance
is not available for directors or officers of corporations, partners or limited
partners of partnerships, or managers or members of limited liability companies
unless such persons sign individually as makers or co-makers on the Note. A&H
Insurance is not available for commercial purpose loans.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO CREDIT INSURANCE
- --------------------------------------------------------------------------------
I do not desire any credit insurance. I request the cancellation of any
credit insurance presently in force for my loan and the refund of any
unearned premium.
________________________________________________________________________________
Borrower A
________________________________________________________________________________
Borrower B
- --------------------------------------------------------------------------------
PROPERTY INSURANCE
If I am required to have property insurance for this loan, I may furnish it
through existing policies I own or I may obtain it through any insurer
authorized to transact insurance business in this state. If I get the insurance
through Lender. I will pay $___________________ for a policy period of
___________________ months.
AGREED: FIRST CITIZENS BANK & TRUST COMPANY (SEAL)
BY: /s/ Tim Ignasher___________________________________
Sales Associate # 18869 Bldg. # 030
- --------------------------------------------------------------------------------
20
<PAGE>
Additional Provisions of Note Modification
1. DEFINITION OF TERMS: References to "First Citizens Bank & Trust Company"
include any financial institution merged with and into First Citizens Bank
& Trust Company. The term "Note" as used in this Agreement referred to the
original Note identified on the front of this Agreement. The Note, an
instruments executed to secure repayment of the Note, all loan commitment
letters and loan agreements, and all other loan documents executed in
connection With the loan transaction evidenced by the Note are
collectively referred to in this Agreement as the Loan Documents." The
terms "Note" and "Loan Documents" include any prior renewals, extensions
or modifications thereof.
2. PRIME RATE: The Lender's "Prime Rate ` of interest, as, that term is used
in this Agreement, means that rate established from time to time by Lender
and identified as such within Lender's offices.. The term "Prime Rate"
shall be used as a mean's of identifying a rate of interest index and not
as a representation by Lender that the Prime Rate is necessarily the
lowest or most favorable rate of interest offered to borrowers by Lender
generally, and no Borrower or Guarantor shall have any claim or right of
action based on such premise.
3. VARIABLE RATE: Notwithstanding any other provision of the Note or this
Agreement, if the interest rate increases during the remaining term of the
loan, Lender may (1 ) increase the amount of the periodic payment to have
the loan fully amortized at Maturity, (2) extend the Maturity, or (3)
require the resulting increase to be paid at Maturity, or any combination
of the foregoing, all in Lender's discretion as determined from time to
time by Lender. (Except that if this loan is subject to the federal Truth
in Lending Act and its implementing regulations, the foregoing shall not
be enforced in conflict with the disclosures given pursuant thereto.).
4. LATE CHARGE: Unless the principal and interest are repayable in one single
payment, there shall be a late charge of 4% of the unpaid balance or any
payment past due for 15 days or more. If this is a modification of a
"PayAnyDay" loan (i.e., a loan under which payments are not past due until
the last day of the calendar month in which a payment is due, then a
payment will be considered "late" for purposes of assessing a late charge
if a payment is made after the last day of the calendar month in which it
is due.
5. FUTURE MODIFICATIONS: Any subsequent modifications, Extensions or renewals
of the Note or any of the other Loan Documents may, at Lender's option, be
made on Lender's standard forms. Such forms may identity Lender as the
original lender, payee on the Note, beneficiary of any deed of trust, and
secured party in any security instrument, notwithstanding the fact that
First Citizens Bank & Trust Company may not have been designated as the
original payee or secured party in the original Loan Documents.
6. SECURITY INSTRUMENTS: This Agreement amends, modifies, and supplements any
instrument given to secure repayment of the Note to reflect the changes to
the loan transaction described herein. (in addition, each instrument given
to secure repayment of the Note is hereby amended by adding the Following
language thereto:
"The terms or the Note evidencing the indebtedness secured by this
instrument may be modified from time to time by agreement between the
parties obligated thereon and the holder of the Note, including, but
not limited to, a modification to increase (the interest rate, to
change the payment and/or payment schedule, to change the maturity
dale, and/or to extend time for the payment of such indebtedness and
such Note as so modified shall continue to be secured hereby and with
a priority as or the date of this instrument (or, if this instrument
has been recorded, as of the date of recordation), regardless of
whether any such modification is reduced to writing or recorded."
7. NOTE MODIFICATION AGREEMENT ADDENDUM: Any Note Modification Agreement
Addendum incorporated into this Agreement by reference shall be fully
binding on each Borrower and Guarantor, jointly and severally, when signed
or initialed by or on behalf of any one or more of the Borrowers.
8. LOAN DOCUMENTS: All of the Loan Documents are hereby modified, amended and
supplemented to the extent necessary to effect the changes to the loan
transaction specified in this Agreement. The terms of the Note and all
other Loan Documents remain unchanged and in full force and effect, except
as modified by this Agreement.
9. LIABILITY OF PARTIES: The Note, as modified by this Agreement, shall be
the joint and several obligation of each Borrower, regardless of whether
such Borrower was an original maker of the Note. Each Guarantor (whether
surety, guarantor or endorser) consents to the terms of this Agreement and
agrees to be bound by the terms of this Agreement as a part of the
Guarantor's continuing obligation. Sureties, guarantors and endorsers who
do not sign this Agreement will nonetheless be bound by the terms of this
Agreement as a part of their continuing obligation. This Agreement shall
not release or diminish the liability of any surety, guarantor or
endorser.
10. MISCELLANEOUS: This Agreement shall be binding upon, and inure to the
benefit of, the parties to this Agreement and their
successors-in-interest. This Agreement is not a novation, rather, it
constitutes a modification to the (terms of an existing contractual
relationship between the parties and is not intended as a cancellation of
the original debt or the creation of a new debt. The parties to this
instrument confirm and ratify the terms of the Note and all other Loan
Documents, as modified by this Agreement.
21
<PAGE>
<TABLE> <S> <C>
<CAPTION>
<S> <C>
<ARTICLE> 5
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 145,545
<SECURITIES> 0
<RECEIVABLES> 1,000,865
<ALLOWANCES> 65,000
<INVENTORY> 1,003,796
<CURRENT-ASSETS> 2,228,217
<PP&E> 1,912,793
<DEPRECIATION> 734,888
<TOTAL-ASSETS> 3,524,706
<CURRENT-LIABILITIES> 1,087,601
<BONDS> 0
0
0
<COMMON> 34,534
<OTHER-SE> 1,327,466
<TOTAL-LIABILITY-AND-EQUITY> 3,524,706
<SALES> 2,211,735
<TOTAL-REVENUES> 2,211,735
<CGS> 1,343,538
<TOTAL-COSTS> 1,343,538
<OTHER-EXPENSES> 1,123,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,808
<INCOME-PRETAX> (355,941)
<INCOME-TAX> 0
<INCOME-CONTINUING> (355,941)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,941)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
