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 August 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 September 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 20 pages. The Exhibit Index is located on page 17.
<PAGE>
I N D E X
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Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets 3- 4
August 31, 1997 (Unaudited) and November 30, 1996 5
Condensed Statements of Operations
Three and Nine months ended August 31, 1997 and August 31, 1996 6
(Unaudited)
Condensed Statements of Cash Flows Nine months ended August 31,
1997 and August 31, 1996 (Unaudited)
Notes to Condensed Financial Statements 7- 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities
15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits -- Press Releases and other Exhibits 15
(b) Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, November 30,
1997 1996
(UNAUDITED)
---------------- -------------
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 134,780 $ 399,501
Accounts receivables, net 672,213 1,526,390
Inventories 877,944 1,126,398
Costs and estimated earnings in excess of
billings on uncompleted contracts 52,397 49,277
Prepaid expenses and other assets 42,061 51,935
---------- ----------
Total current assets $1,779,395 $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, 175,652 226,559
Machinery and equipment 70,166 153,572
Software 102,650 102,650
Vehicles -- 23,629
---------- ----------
$1,775,091 $1,933,033
Less accumulated depreciation 615,518 693,234
----------- ----------
$1,159,573 $1,239,799
----------
INTANGIBLE ASSETS $ 74,849 $ 142,213
---------- ----------
$3,035,098 $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
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<TABLE>
<CAPTION>
AUGUST 31, November 30,
1997 1996
(UNAUDITED)
------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 330,270 $ 847,217
Current maturities of long- term debt (Note 4) 63,287 68,410
Accounts payable and accrued expenses;
including affiliates $393,928 at 1997
and $422,050 at 1996 494,067 702,305
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,596 118,657
---------- -----------
Total current liabilities $ 891,220 $ 1,736,589
---------- -----------
LONG-TERM DEBT (Note 4 ) $ 1,058,776 $ 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 (3,160,998) (2,528,159)
---------- -----------
$ 1,085,102 $ 1,717,941
---------- -----------
$ 3,035,098 $ 4,556,794
============ ===========
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
AUGUST 31, August 31, August 31, August 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 915,679 $ 1,144,829 $ 3,127,414 $ 4,098,724
Cost of goods sold 672,193 782,217 2,015,731 2,582,449
----------- ----------- ------------ -----------
Gross profit $ 243,486 $ 362,612 $ 1,111,683 $ 1,516,275
----------- ----------- ------------ -----------
Operating expenses:
Selling $ 178,275 $ 144,820 $ 525,818 $ 488,264
General and administrative 284,708 319,169 1,060,495 1,021,504
Research and development -- -- -- 3,943
----------- ----------- ------------ -----------
$ 462,983 $ 463,989 $ 1,586,313 $ 1,513,711
----------- ----------- ------------ -----------
Operating income (loss) $ (219,497) $ (101,377) $ (474,630) $ 2,564
----------- ----------- ------------ -----------
Net interest income (expense):
Interest income $ -- $ -- $ -- $ --
Interest expense (57,401) (43,087) (158,209) (151,991)
----------- ----------- ------------ -----------
$ (57,401) $ (43,087) $ (158,209) $ (151,991)
----------- ----------- ------------ -----------
Loss before income taxes $ (276,898) $ (144,464) $ (632,839) $ (149,427)
Federal and state income taxes (Note 2) -- (28,829) -- (28,829)
----------- ----------- ------------ -----------
Net loss $ (276,898) $ (115,635) $ (632,839) $ (120,598)
=========== ============ ============ =============
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) $ (0.08) $ (0.03) $ (0.18) $ (0.03)
=========== ============ ============ ============
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>
Nine Months Ended
August 31, August 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 317,326 $ 284,187
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ 6,535 $ --
Purchase of property and equipment (28,464) (31,004)
--------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES $ (21,929) $ (31,004)
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit agreement $(516,947) $ 6,670
Principal payments on long-term borrowings (48,611) (271,804)
--------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $(565,558) $(265,134)
--------- ----------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ 5,440 $ 402
--------- ----------
Increase (decrease) in cash and cash equivalents $(264,721) $ (11,549)
Cash and cash equivalents:
Beginning 399,501 164,781
--------- ----------
Ending $ 134,780 $ 153,232
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 171,021 $ 140,741
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 August 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 and nine months ended August 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 August 31, 1997:
<TABLE>
<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 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 Loan Agreement terminates upon demand by
the Bank or April 1, 1998. (1)(2) $ 330,270
============
Long-term debt consists of the following at August 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 $1,030,572. The loan also contains certain financial
covenants to which the Company must adhere. As of August 31, 1997, the Company
obtained waivers for certain financial covenants as specified by the Mortgage
note agreement. $1,122,063
Less current maturities: 63,287
-----------
$1,058,776
===========
</TABLE>
(1) The prime rate at August 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 August 31, 1997 are as follows:
Year Ending
August 31,
- ----------------
1998 $ 63,287
1999 1,058,776
-----------
$1,122,063
===========
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:
* A down payment of $15,000 was due March 1, 1996
* Twenty-eight (28) monthly installments of $6,000 each, commenced March
1, 1996 for a total of $168,000.
* 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.
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. During 1996 and for the first three
quarters of 1997, the Company refocused its sales efforts to existing Original
Equipment Manufacturers (OEM's) and system integrators in the AGV systems
industry. Such OEM's and system integrators have historically sold products to
end users to whom the Company occasionally had direct sales. The Company reduced
its sales effort to such end users to avoid competing with its intended OEM
customers.
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.
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.
10
<PAGE>
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
Strategy diversification: At this time 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. The
Company's strategy of not selling directly to end users has contributed to the
losses incurred by the Company during 1997. Therefore, the Company will begin
soliciting its products to end users during the fourth quarter to ensure that
its technology will be available to such end users. The Company will not sell
directly to end users where a qualified OEM or OEMs are specifying NDC controls
in their system solution to the potential end users. There can be no assurances
that such a strategy will be successful in the short or long term.
Distribution of products and technology: The Company also intends to
pursue other but related products lines that can be distributed to its targeted
customers to supplement its existing AGV business. This should allow the Company
to grow, while making the Company less dependent on its present product line.
There can be no assurance, however that this strategy will meet management's
objectives for growth.
Munck Agreement: On October 6, 1997 the Company executed a Strategic
Alliance Agreement with Munck Automation Technology. Inc. ("Munck") of Newport
News, Virginia . Munck is a major supplier of automated material handling
systems including AGVS vehicles and systems and automatic storage and retrieval
systems ("AS/RS") to end users. The initial term of the agreement is three
years, subject to Munck reaching certain sale targets on an annual basis. The
Agreement extends automatically in one year increments subject to the approval
of both companies.
Pursuant to the Agreement , Munck agrees to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also has
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware , software and
engineering services over the initial three year term of the Agreement. There
can be no assurances that Munck will meet such targets. Under the Agreement,
NDCA will promote Munck products to end users. The two companies should
complement each other well and customers will benefit from the combined
resources and capabilities. This agreement strengthens the existing cooperation
the companies have enjoyed over the last year in marketing and installing AGV
systems.
11
<PAGE>
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 nine-month periods ended August 31,
1997 and 1996, respectively. This table should be read in the context of the
Company's condensed statements of operations presented elsewhere herein:
<TABLE>
<CAPTION>
Percentage of Change
Period to Period
Percentage of Net Revenues Increase(Decrease)
- --------------------------------- ------------------------------------------------------ ---------------------------
Three Nine Months
Months Ended
Three Months Nine Months Ended August 31,
Ended Ended August 31,
August 31, August 31, August 31, August 31, 1996 to 1997 1996 to 1997
1997 1996 1997 1996 % %
% % % %
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Revenues 100.0 100.0 100.0 100.0 (20.0) (23.7)
Cost of Goods Sold 73.4 68.3 64.5 63.0 (14.1) (21.9)
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross Profit 26.6 31.7 35.5 37.0 (32.9) (26.7)
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Selling 19.5 12.6 16.8 11.9 23.1 7.7
General and administrative 31.1 27.9 33.9 24.9 (10.8) 3.8
Research and development - - - 0.1 - -
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
50.6 40.5 50.7 36.9 (.2) 4.8
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (24.0) (8.8) (15.2) 0.1 116.5 *
Net interest expense: (6.3) (3.8) (5.1) (3.7) 33.2 4.9
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Loss before income taxes (30.3) (12.6) (20.3) (3.6) 91.7 323.5
Federal and state income taxes
(benefit) - (2.5) - (0.7) (100.0) (100.0)
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Loss (30.3) (10.1) (20.3) (2.9) 139.5 424.8
================================= ============= ============= ============= ============= ============= =============
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
Quarter ended August 31, 1997 Compared to the Quarter Ended August 31, 1996
- ---------------------------------------------------------------------------
Net revenues decreased by $229,150 or 20.0% from $1,144,829 in the earlier
period to $915,679 in the latter period. The contributing factors which resulted
in lower revenues were a low opening backlog at May 31, 1997 and the Company's
continued focus on AGVS controls and engineering to Original Equipment
Manufacturers (OEM) and system integrators exclusively, with no sales effort
directed at end users.
Cost of goods sold decreased from $782,217 to $672,193 or 14.1% due primarily to
lower net revenues in 1997. As a percentage of net revenues, cost of goods sold
increased compared to 1996 due to a write-down of inventory during the current
year of approximately $90,000 compared to approximately $30,000 the prior year.
Gross profit decreased by $119,126 or 32.9% from $362,612 to $243,486, while
gross profit as a percentage of net revenues decreased to 26.6% from 31.7% due
to the same factor.
Selling expenses increased from $144,820 to $178,275, or, 23.1%, due primarily
to higher advertising and marketing expenses during 1997 compared to 1996.
General and administrative expenses decreased from $319,169 to $284,708, or
10.8% due primarily to a reduction in the provisions for bad debts. As a
percentage of net revenues, general and administrative expenses increased from
27.9% to 31.1%.
12
<PAGE>
Primarily as a result of the foregoing, operating loss increased by $118,120
from $101,377 in the earlier period to an operating loss of $219,497 in the
latter period.
Net interest expense increased from $43,087 to $57,401, an increase of $14,314.
The net decrease is primarily due to Bank fees and the interest rate on existing
borrowings compared to the prior year.
Loss before income taxes increased by $132,434 from $144,464 to a loss of
$276,898, 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 $161,263 from
$115,635 to a net loss of $276,898.
Backlog. Backlog consists of all amounts contracted to be paid by customers but
not yet recognized as net revenues by the Company. At August 31, 1997, the
Company had a backlog of approximately $440,000 compared to approximately
$1,200,000 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. Management presently does
not expect a profit in the fourth quarter of 1997 due to the low backlog at
August 31, 1997.
Nine Months Ended August 31, 1997 Compared to Nine Months Ended August 31, 1996
- -------------------------------------------------------------------------------
Net revenues decreased by $971,310, or 23.7%, from $4,098,724 in the earlier
period to $3,127,414 in the latter period. The decline is primarily due to the
Company's marketing and sales strategy to target AGVS OEM customers and system
integrators only; previously, the Company also sold systems directly to end
users. Due to the significant decrease in revenues the Company will begin to
target end users for its AGVS technology and aggressively pursue distribution of
new products and technology .
Cost of goods sold decreased from $2,582,449 to $2,015,731, or 21.9%, due
primarily to the lower level of net revenues. As a percentage of net revenues,
cost of goods sold increased from 63.0% to 64.5%. Gross profit decreased by
$404,592, or 26.7%, from $1,516,275 to $1,111,683, while gross profit as a
percentage of net revenues decreased from 37.0% to 35.5%.
Selling expenses increased from $488,264 to $525,818, or 7.7% due primarily to
higher advertising and marketing expenses during 1997 compared to 1996 . General
and administrative expenses increased from $1,021,504 to $1,060,495, or 3.8%,
primarily due to increased expenses relating to personnel compared to the prior
year .
Primarily as a result of the foregoing, the operating loss for the period was
$474,630 compared to an operating income of $2,564 the prior year.
Net interest expense increased from $151,991 to $158,209, an increase of 4.9%.
The increase is primarily due to increased bank fees in the current year
compared to the prior year.
Loss before income taxes increased by $483,412, from a loss of $149,427 in
1996, to a loss of $632,839 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 $512,241,
from $120,598 to a net loss of $632,839.
13
<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 offering, and private offerings, to satisfy its external financing needs.
During the nine months ended August 31, 1997 net cash provided by operating
activities was $317,326. 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 the bank by $516,947.
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 to 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 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 Company has begun to explore the possibility of raising additional equity
capital in order to improve its financial position . Management believes a
stronger financial position should contribute to increasing customer and
shareholder confidence in the Company's plans for a successful future.
14
<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 -
Letter to NDCA from NDCab re: selling to end users
Press Releases:
Strategic alliance Agreement between Munck Automation Technology
and NDC Automation, Inc.
(b) Reports on Form 8-K
Resignation of Director, Mr. T Randolph Whitt
(incorporated by reference to report on Form 8K dated September
11, 1997)
15
<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: October 10, 1997
BY: /s/ Claude Imbleau
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: October 10, 1997
16
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
Designation Number
Under Item 601 of
Exhibit Number Regulation S-K Page
Exhibit Description Number
- ------------------ --------------------- ------------------------------------------------------------ -----------
<S> <C> <C> <C>
(A) Exhibits:
1. 10 Letter dated September 10, 1997 from NDCab to NDC
Automation, Inc. pertaining to direct sales to end users
as defined by the Master license Agreement. 18
2. 17 Resignation of Director, Mr. T Randolph Whitt,
incorporated by reference to report on Form 8K dated
September 11, 1997 -
3. 27 Financial Schedule 20
4. 99 Press release announces Strategic Alliance Agreement dated
October 6, 1997 between the Company and Munck Automation
Technology, Inc. 19
</TABLE>
17
<PAGE>
<PAGE>
[Logo]
NDC
Netzler & Dahlgren Co AB
NDC Automation Inc
Mr. Ralph Dollander
3101 Latrobe Drive
CHARLOTTE NC 28211
U S A
September 10, 1997
Dear Ralph:
This is to confirm our recent discussions regarding the interpretation of
paragraph 2.6, "the non-competition clause" of the Master License Agreement
(MLA) between NDC Automation, Inc. (NDCA) and Netzler & Dahlgren Co AB (NDC).
Let me first outline our long term strategy:
It is the objective of the NDC business strategy to make NDC AGVS Control
Technology and Products part of all AGV systems that will be installed
world-wide. To make that happen, we need partners, e.g. AGV manufacturers and
other process equipment manufacturers, who within their specific geographical
area or niche will incorporate our technology and products in the AGVs they
supply.
However, in market areas where no such partner or potential partner is
available, NDCA must be able to intervene and absorb the full responsibility for
a complete AGV system in order to ensure that the NDC technology and products
will be installed rather than any competing technology.
Consequently, NDC acknowledges the fact that NDCA may generate revenues also
from other sources than partners, e.g. systems business directly with end users,
through system integrators, etc. However, NDCA' s direction of being a supplier
of technology and products to partners is unchanged and NDCA may accept
"non-partner" business only after careful consideration in each case in order
not to jeopardize future partner agreements.
For obvious reasons, NDCA shall not compete with existing NDCA or NDC partners.
Best regards,
/s/ Goran Netzler
Goran Netzler
President of NDC Netzler & Dahlgren Co AB
<PAGE>
FOR IMMEDIATE RELEASE
October 10, 1997
NDC AUTOMATION, INC. ANNOUNCES
STRATEGIC ALLIANCE AGREEMENT WITH MUNCK
Charlotte, NC, October 10, 1997, NDC Automation, Inc. (OTC Bulletin
Board Symbol. "AGVS") announced today that it has executed a Strategic Alliance
Agreement with Munck Automation Technology. Inc. ("Munck") of Newport News,
Virginia . Munck is a major supplier of automated material handling systems
including AGVS vehicles and systems and automatic storage and retrieval systems(
"AS/RS") to end users. The initial term of the agreement is three years, subject
to Munck reaching certain sales targets on an annual basis. Following the third
year, the Agreement extends automatically for one year at a time if approved by
both parties.
Pursuant to the Agreement, Munck agrees to promote NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also has
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware , software and
engineering services over the initial three year term of the Agreement. Under
the Agreement, NDCA will also promote Munck products to end users.
"We are very pleased to have signed this agreement " says Ralph
Dollander, President of NDC Automation, Inc. " Our two Companies complement each
other well and customers will benefit from our combined resources and
capabilities. This agreement strengthens the existing cooperation our companies
have enjoyed over the last year in marketing and installing AGV systems . An
example of such cooperation was the recently completed ten vehicle LGVS ( Laser
Guided Vehicle System ) at a Compact Disk manufacturing facility in North
Carolina."
" Munck is pleased to offer NDC technology to its customers,
especially the Laser technology, LazerWay(TM), says Magne Nygren, President of
Munck Autech. "The Agreement will allow Munck to make this proven
state-of-the-art technology available to our customers immediately, while
allowing us to invest our Research and Development resources in other areas."
NDC Automation, Inc. sells hardware, software, and engineering
services incorporated into and used to control Automatic Guided Vehicle Systems
(AGVS). NDC's sales are targeted to OEM's and system integrators, which buy
solutions from the Company and incorporate them into their material handling
systems for the industries in which they specialize.
******************
For further information contact:
Ralph G. Dollander Claude Imbleau
President VP Finance & Administration
704-362-1115
19
<PAGE>
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<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 134,780
<SECURITIES> 0
<RECEIVABLES> 707,213
<ALLOWANCES> 35,000
<INVENTORY> 877,944
<CURRENT-ASSETS> 1,779,395
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<SALES> 3,127,414
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<OTHER-EXPENSES> 1,586,313
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